Question

On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $61,500. The expenditures made to acquire the asset were as follows: Purchase price $ 258,500 Freight charges 9,600 Installation charges 13,500 Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life. Required: 1. Calculate depreciation for each year of the asset’s eight-year life.

Answer 1

Double Declining Method
A	Cost	$          281,600.00
B	Residual Value	$            61,500.00
C=A - B	Depreciable base	$          220,100.00
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$            27,512.50
F=E/C	SLM Rate	12.50%
G=F x 2	DDB Rate	25.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     281,600.00	25.00%	70400.00	$    211,200.00	$        70,400.00
2	$     211,200.00	25.00%	52800.00	$    158,400.00	$      123,200.00
3	$     158,400.00	25.00%	39600.00	$    118,800.00	$      162,800.00
4	$     118,800.00	25.00%	29700.00	$       89,100.00	$      192,500.00

A	Written Down Value	$            89,100.00
B	Residual Value	$            61,500.00
C=A - B	Depreciable base	$            27,600.00
D	Life [in years Left]	4
E=C/D	Annual SLM depreciation	$              6,900.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
5	$       89,100.00	$              6,900.00	$         82,200.00	$         6,900.00
6	$       82,200.00	$              6,900.00	$         75,300.00	$       13,800.00
7	$       75,300.00	$              6,900.00	$         68,400.00	$       20,700.00
8	$       68,400.00	$              6,900.00	$         61,500.00	$       27,600.00

Depreciation method	Year	Depreciation Amount
Double Declining Method	1	$      70,400.00
	2	$      52,800.00
	3	$      39,600.00
	4	$      29,700.00
Straight line Method	5	$        6,900.00
	6	$        6,900.00
	7	$        6,900.00
	8	$        6,900.00

Cost of Asset
Purchase Price	$ 258,500.00
Freight Charges	$      9,600.00
Installation Charges	$    13,500.00
Total Asset Value	$ 281,600.00

DDB will be used for 4 years, that is half the life of asset.