Question

Assume that MHS purchased two additional pieces of equipment on April 1st (the first day of its fiscal year), as follows: 1. The laboratory equipment cost $300,000 and has an expected life of 5 years. The salvage value is 5 percent of cost. No equipment was traded in on this purchase. 2. The radiology equipment cost $800,000 and has an expected life of 7 years. The salvage value is 10 percent of cost. No equipment was traded in on this purchase. For both pieces of equipment:

1. Compute the straight-line depreciation.

2. Compute the double declining balance depreciation.

Answer 1

Given that:

Laboratory equipment		Radiology equipment
Original cost	300,000	Original cost	800,000
Salvage value (5%)	15,000	Salvage value (10%)	80,000
Depreciable cost (original cost - Salvage value)	285,000	Depreciable cost (original cost - Salvage value)	720,000
Expected life	5 years	Expected life	7 years
1. Straightline Depreciation
Depreciable cost / expected life 285,000 / 5	57,000	Depreciable cost / expected life 720,000 / 7	102,857
Double-Declining Depreciation
Rate of Depreciation (double the rate of Straightline rate) (1 / useful life) x 100 x 2 (1 / 5) x 100 x 2	40%	Rate of Depreciation (double the rate of Straightline rate) (1 / useful life) x 100 x 2 (1 / 7 ) x 100 x 2	28.6
Depreciation of Year 1 40% x 300,000	120,000	Depreciation of Year 1 800,000 x 28.6%	228,800
Depreciation of Year 2 40% x 180,000	72,000	Depreciation of Year 2 571,200 x 28.6%	163,363.2

Hence depreciation of all the years can be obtained.

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