Question

A company purchased a new equipment for $59,000. Assume it will be retired in year 8, with a salvage value of $3,000. Calculate the depreciation for each year of the useful life using the following three methods. Please show your work. a. Straight-line method b. Double declining-balance method c. Sum-of-the-years-digits method c.Among various financial performance measures, which one does the depreciation have a role in?

Answer 1

As per SLM Method
Year	Original Cost	Depreciable Value	Depreciation Expense	Accumulated Depreciation	Ending Book Value
1	$59,000	$56,000	$7,000	$7,000	$52,000
2		$56,000	$7,000	$14,000	$45,000
3		$56,000	$7,000	$21,000	$38,000
4		$56,000	$7,000	$28,000	$31,000
5		$56,000	$7,000	$35,000	$24,000
6		$56,000	$7,000	$42,000	$17,000
7		$56,000	$7,000	$49,000	$10,000
8		$56,000	$7,000	$56,000	$3,000
SLM=( Original Cost- Salvage Value )/ No. of Year
=(59000-3000)/8=$7000

As per double declinning method
Year	Original Cost	Beg. Book Value	Depreciation Expense	Accumulated Depreciation	Ending Book Value
1	59,000	59,000	14,750	14,750	44,250
2		44,250	11,063	25,813	33,188
3		33,188	8,297	34,109	24,891
4		24,891	6,223	40,332	18,668
5		18,668	4,667	44,999	14,001
6		14,001	3,500	48,499	10,501
7		10,501	2,625	51,124	7,876
8		7,876	4,876	56,000	3,000
DDB Rate= 1/ Useful Life X 2 = (1/8*2)=25%
As perSOY method
Year	Original Cost (A)	Depreciable Value (B)	Depreciation Expense (C =BXF))	Accumulated Depreciation (D)	Ending Book Value (E = A-D)
1	$59,000	$56,000	$12,444.44	$12,444	$43,556
2		$56,000	$10,888.89	$23,333	$32,667
3		$56,000	$9,333.33	$32,667	$23,333
4		$56,000	$7,777.78	$40,444	$15,556
5		$56,000	$6,222.22	$46,667	$9,333
6		$56,000	$4,666.67	$51,333	$4,667
7		$56,000	$1,666.67	$53,000	$3,000
8					$0