Question

the equipment is expected to have a 4-year useful life, and be worth about $9,000 at the end of 4 years..at a cost of 37,800

Answer 1

(a) Depreciation Expenses – Straight Line Method

Depreciation = [ Cost – Residual Value ] / Useful Life

= [ $37,800 – 9,000 ] / 4 Years

= $7,200 per year

(b) Depreciation Expenses – Double Declining Balance Method

Double Declining Depreciation = Book Value Beginning x Depreciation Rate

Depreciation Rate = 2 x [1 / Usefull life]

                             = 2 x [1/4 Years ]

                             = 50%

Year	Book Value at the beginning	Depreciation Rate	Annual Depreciation	Book Value at the end
1	37,800	0.5	18900	18,900
2	18,900	0.5	9450	9,450
3	9,450	0.5	450	9,000
4	9,000	-	-	9,000

The Asset has fully depreciated to it’s salvage value at the end of 3 year itself. Therefore, there e will not be any depreciation expense in year 4