Question

21 Equipment acquired on October 1, 2017, at a cost of $600,000 has an estimated useful life of 8 years. The residual value is estimated to be $80,000 at the end of the equipment's useful life. The company has a December 31 year end.

Instructions

Calculate the depreciation expense for December 31, 2017 and 2018 using:

         (a)           the straight-line method.

         (b)          the double diminishing-balance method.

Answer 1

(a)	Straight line method:
			December 31, 2017		December 31, 2018
	Depreciation Expense		$           16,250		$     65,000
Working:
	Straight line depreciation	=	(Cost - Salvage Value)/Useful life
		=	(600000-80000)/8
		=	$           65,000
	Depreciation for the year ended 2017	=	$           65,000	*	3/12
		=	$           16,250
(b)	Double diminishing-balance method:
			December 31, 2017		December 31, 2018
	Depreciation Expense		$           37,500		$ 1,40,625
Working:
	Straight line rate	=	1/8	=	12.50%
	Double declining rate	=	2*12.50%	=	25.00%
	Depreciation for year ended 2017	=	Beginning book value * Depreciation rate * time
		=	600000*25.00%*3/12
		=	$     37,500.00
	Depreciation for year ended 2018	=	Beginning book value * Depreciation rate * time
		=	(600000-37500)*25.00%*12/12
		=	$ 1,40,625.00