Question

Windsor Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.

Year		Straight-Line				Sum-of-the- Years'-Digits				Double-Declining- Balance
1			$10,440				$17,400				$23,200
2			10,440				13,920				13,920
3			10,440				10,440				8,352
4			10,440				6,960				5,011
5			10,440				3,480				1,717
Total			$52,200				$52,200				$52,200

What is the cost of the asset being depreciated?

What amount, if any, was used in the depreciation calculations for the salvage value for this asset?

Which method will produce the highest charge to income in Year 1?

Which method will produce the highest charge to income in Year 4?

Which method will produce the highest book value for the asset at the end of Year 3?

If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?

Answer 1

a)	Depreciable cost	=	Depreciation* Useful life
		=	10440*5
		=	52200
b)	Double Declining	=	Depreciation/Depreciable cost*100*2
	Depreciation rate
		=	10440/52200*100*2
		=	40	%
Answer 1	Cost of asset	=	Double Declining Depreciation/40%
		=	23200/40%
		=	58000
Answer 2	Salvage value	=	Cost of asset-Depreciable cost
		=	58000-52200
		=	5800
Answer 3	Highest charge to income	=	23200	Double Declining Depreciation
	in year 1
Answer 4	Highest charge to income	=	10440	Straight line method
	in year 4
Answer 5	Hightest book value	=	26680	Straight line method
	in year 3
Answer 6	Highest gain	=	Double Declining balance
			(Method having lowest book value)

Straight line method
Year	Book Value	Depreciation	Accumulated	Book
	Beginning	Expense	Deprecaition	value
1	58000	10440	10440	47560
2	47560	10440	20880	37120
3	37120	10440	31320	26680
4	26680	10440	41760	16240
5	16240	10440	52200	5800

Sum of digits depreciation
Year	Book Value	Depreciation	Accumulated	Book
	Beginning	Expense	Deprecaition	value
1	58000	17400	17400	40600
2	40600	13920	31320	26680
3	26680	10440	41760	16240
4	16240	6960	48720	9280
5	9280	3480	52200	5800

Double Declining method
	Book Value	Depreciation	Accumulated	Book
	Beginning	Expense	Deprecaition	value
1	58000	23200	23200	34800
2	34800	13920	37120	20880
3	20880	8352	45472	12528
4	12528	5011	50483.2	7517
5	7517	1717	52200	5800