Question

Underwater electroacoustic transducers were purchased for use in SONAR applications. The equipment will be DDB depreciated over an expected life of 12 years. There is a first cost of$25,000 and an estimated salvage of $2500. (a) Calculate the depreciation and book value for years 1 and 4. (b) Calculate the implied salvage value after 12 year.

Answer 1

Solution:-

Given that

First we calculate depreciable value = first cost - salvage

= 25000 - 2500

= 22500

Then divide it by the estimate life of 12 year

  

= 1875

This is

= 8.33% of depreciable value

So we take 8.33% * 2 = 16.67% and apply it on first cost (not depreciable value) for year 1, and year 2 onwards on the book value at the begining of the year (or end of previous year) to generate the DDB schedule. Pls see below table for the calculations and the answer.

Year	Opening book value	Depreciation @ 16.67% on Opening book value	CLosing book value = Opening book value - Depreciation
1	25,000.00	4,167.50	20,832.50
2	20,832.50	3,472.78	17,359.72
3	17359.72	2893.87	14465.86
4	14465.86	2411.46	12054.40
5	12054.40	2009.47	10044.93
6	10044.93	1674.49	8370.44
7	8370.44	1395.35	6975.09
8	6975.09	1162.75	5812.34
9	5812.34	968.92	4843.42
10	4843.42	807.40	4036.02
11	4036.02	672.81	3363.22
12	3363.22	560.65	2802.57

Implied book value at the end of year 12 = $ 2802.57

Thanks for supporting***

Please give positive rating***