Question

Cross Corporation purchases three assets:

• Machine for $500,000 with useful life of 4 years
• Building for $1,500,000 with useful life of 30 years
• Patent for $250,000 with useful life of 20 years

It sells the machine for $100,000 after three years.

Fill out the following blanks in the table below:

	Machine	Building	Patent
Depreciation or amortization method	Double declining balance; no salvage value	Straight-line; salvage value of $300,000	Amortization (straight-line)
Depreciation or amortization expense in year 1
Net book value at the end of year 3
Gain (or loss) from sale
Accumulated depreciation at the end of year 6

Answer 1

Particulars				Machine	Building	Patent
Depreciation or amortization expense in year 1				$ 2,50,000.00	$      40,000.00	$    12,500.00
Net book value at the end of year 3				$    62,500.00	$ 13,80,000.00	$ 2,12,500.00
Gain (or loss) from sale				$    37,500.00	$                     -	$                  -
Accumulated depreciation at the end of year 6				$                  -	$   2,40,000.00	$    75,000.00

Workings:

Machine
Useful Life		4	years
Rate of depreciation		50%	(100% / 4) x 2

	Beginning	Rate of	Depreciation	Accumulated	Ending
Year	Book Value	Depreciation	Expense	Depreciation	Book Value
1	$ 5,00,000.00	50%	$ 2,50,000.00	$ 2,50,000.00	$ 2,50,000.00
2	$ 2,50,000.00	50%	$ 1,25,000.00	$ 3,75,000.00	$ 1,25,000.00
3	$ 1,25,000.00	50%	$    62,500.00	$ 4,37,500.00	$    62,500.00

Sale Value		$   1,00,000.00
Book Value		$      62,500.00
Gain on sale		$      37,500.00

Building
Cost		$ 15,00,000.00
Salvage Value		$   3,00,000.00
Depreciable Cost		$ 12,00,000.00
Useful Life		30
Depreciation Expense		$      40,000.00

Patent
Cost		$ 2,50,000.00
Useful Life		20
Amortization Expense		$    12,500.00