Question

6

(A) A machine that cost $96,000 on January 1, 2015 was depreciated by Ava Company using the double declining method. The machine had a $8,600 residual value and a useful life of 5 Years. On January 1. 2017, the company switched to the straight line method.

What is the book value of the machine as of January 1, 2017?________

(B) A machine that cost $96,000 on January 1, 2015 was depreciated by Ava Company using the straight line method. The machine had no residual value and a useful life of 8 Years. On January 1. 2017, the company switched to the sum of years’-digits method.

What is the depreciation expense for the year ended December 31, 2017 $____

Answer 1

A	Requirement
	WN
	Calculation of depreciation following the double declining method
	Straight Line
	Depreciation		(Cost-Salvage Value)/useful life
	Cost	$96,000
	Residual Value	$8,600
	Useful Life	5 yrs
	rate of Depreciation	2/5*100	40% per Yr
	Schedule
	Yr	Gross BV	Net BV at start	Accumulated Depreciation at beginning	Depreciation Exp	Acc Dep at end	BV at end
		A	B	C	B*.4	D=C+B*.4	A-D
	2015	$96,000	$96,000		$38,400.0	$38,400.0	$57,600
	2016	$96,000	$57,600	$38,400	$23,040.0	$61,440.0	$34,560.0
	So the BV ar end of 2016 ie beginning of 2017 Jan is $34560 since the company switched to straight line method without retro spective effect.
B	Requirement
	Using the sum of digits method
	Under the straight line method depreciation calcuated is
	Cost-Salvage Value/Useful Life
	$96,000	Cost
	Nil	Salvage Value
	8	Useful Yrs
	There fore Depreciation
		($96000-0)/8*2
		$24000 for two yrs 2015 and 2016
	Now the schedule
	Yr	Gross BV	Net BV at start	Accumulated Depreciation at beginning	Depreciation Exp	Acc Dep at end	BV at end
		A	B	C	D	E=C+D	A-E
	2015	$96,000	$96,000		$12,000	$12,000	$84,000
	2016	$96,000	$84,000	$12,000	$12,000	$24,000	$72,000
	So the BV at the beginning of Jan 2017 is $72000
	when the asset started following the sum of digits method from 1st jan 2017 without retrospective effect.
	Sum of Yrs Digits		n(n+1)/2
			1+2+3+4+5+6+7+8
			8(8+1)/2
			36
	Depreciable Base		$72,000
	BV at the beginning of Jan 2017
	Yr	Depreciable Base	Depreciation Factor	Depreciation Expense	Accumulated Depreciation
	2017	$72,000	(8/36)	$16,000	$16,000
	So the depreciation expense for 31st dec 2017 is $16000