Question

An asset with the first cost of $100,000 is depreciated over a 5-year period. It is expected to have a $10,000 salvage value at the end of 5 years.

(1) Using the straight-line method, what is the net book value at the end of year 2?

(2) Using the sum of years digit method, what is the depreciation expense for year 1?

(3) Using the double-declining balance method, what is the depreciation expense for year 3?

Plz type the answer thanks

Answer 1

Answer-1)- Using the straight-line method, the net book value at the end of year 2 is =$64000.

Explanation- Straight line Method- Annual depreciation expense-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($100000-$10000)/5 years

= $90000/5 years

= $18000

Net book value at the end of year 2= Cost of fixed asset – First year depreciation expense – Second year depreciation expense

= $100000-$18000-$18000

= $64000

Answer- 2)- Using the sum of years digit method, the depreciation expense for year 1 is = $30000.

Explanation-Sum of the years digits=Depreciable base*Remaining useful life/sum of the years digits

Sum of the Years' Digits = 1+2+3+4+5= 5(5 + 1) /2 = 15

Depreciable Base =Cost of asset – Salvage value

= 100000− $10000

= $90000

Depreciation expenses Year 1 = $90000*5/15

= $30000

Answer-3)- Using the double-declining balance method, the depreciation expense for year 3 is = $14400.

Explanation- Double Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/5 = 0.20 = 20%
Declining Balance Rate = 2*20% = 40%

Depreciation expense for Year 1= $100000 *40% = $40000

Book value at the end of Year 1 = $100000 - $40000 = $60000

Depreciation expense for Year 2 = $60000 * 40% = $24000

Book value at the end of Year 2 = $60000 - $24000= $36000

Depreciation expense for Year 3 = $36000 * 40% = $14400