Question

The New York City Hospital has just acquired new equipment. The equipment cost $4,250,000 and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The equipment is expected to have a 10 year useful life and a salvage value of 10% ($425,000). Calculate the first 5 years of depreciation using SL, DDB and SYD.

Answer 1

Straight line Method
Cost of Equipment	$42,50,000
Add: cost of upgrading plant	$1,35,000
Total cost of Equipment	$43,85,000
Less: Salvage value	$4,25,000
Depreciale cost	$39,60,000
Expected useful life (years)	5
Annual Depreciation	$7,92,000
Depreciation for 5 years will be $792,000 per year

Double Decling Method
Cost of Equipment	$42,50,000
Add: cost of upgrading plant	$1,35,000
Total cost of Equipment	$43,85,000
Expected useful life (years)	5
Annual Depreciation (%)	20%
DDB Depreciation rate	40%

Year	Beginning Book Value	Depreciation at 40%	Accumulated Depreciation	Ending Book Value
1	$43,85,000	$17,54,000	$17,54,000	$26,31,000
2	$26,31,000	$10,52,400	$28,06,400	$15,78,600
3	$15,78,600	$6,31,440	$34,37,840	$9,47,160
4	$9,47,160	$3,78,864	$38,16,704	$5,68,296
5	$5,68,296	$1,43,296	$39,60,000	$4,25,000

SYD Method
Cost of Equipment	$42,50,000
Add: cost of upgrading plant	$1,35,000
Total cost of Equipment	$43,85,000
Less: Salvage value	$4,25,000
Depreciale cost	$39,60,000
Expected useful life (years)	5
Sum of years Digits (1+2+3+4+5)	15

Year	Depreciable cost	Depreciation at SYD	Depreciation Expense	Accumulated Depreciation
1	$39,60,000	5/15	$13,20,000	$13,20,000
2	$39,60,000	4/15	$10,56,000	$23,76,000
3	$39,60,000	3/15	$7,92,000	$31,68,000
4	$39,60,000	2/15	$5,28,000	$36,96,000
5	$39,60,000	1/15	$2,64,000	$39,60,000