Question

On January 1 of the current​ year, Reynoso Manufacturing Company purchased a metal cutting and polishing machine at a cost of $3,880,000. The installation and delivery costs amounted to $220,000. The firm expects the machine to be productive for a total of five years and expects a residual value of $420,000 at the end of the​asset's useful life.

Requirements:

Prepare the depreciation schedules for the machine assuming that the following methods were used​ (each case is​ independent):

1.	​Straight-line method
2.	​Double-declining balance method​ (DDB) (Reduce the depreciation expense in the last year to the necessary amount to arrive at an ending book value equal to the scrap​ value.)

Answer 1

	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
	Purchase Cost of Machine	38,80,000
	Add: Installation and Delivery Cost	2,20,000
	Depreciated Value	41,00,000
	Less: Salvage Value	4,20,000
	Net Value for Depreciation	36,80,000
	Usefule life of the Assets	5 years
	Depreciation per year = Value for Depreciation / 5 years =	7,36,000
	Total Depreciation for the per year	7,36,000
	CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR MACHINE C
	Purchase Cost of Machine inluding installation	41,00,000
	Useful Life =	5 years
	Depreciation per year =	8,20,000
	(Purchase price / Useful life)
	Rate of Depreciation =
	Rate of Depreciation = (1 / 5 Years )	0.20 or 20.00%
	(Depreication / Purchase price )
	Double decline deprection rate = 20% * 2 =	40.0%
	Depreciation for the year 1 =
	Purchase Value (Including installantion and delivery Cost) =	41,00,000
	Rate of Depreciation = 40.00% =	16,40,000
	Closing Value of year 1	24,60,000
	Opening Balance of the year 2	24,60,000
	Depreciation @ 40%	9,84,000
	Closing Value of year 2	14,76,000
	Opening Balance of the year 3	14,76,000
	Depreciation @ 40%	5,90,400
	Closing Value of year 3	8,85,600
	Opening Balance of the year 4	8,85,600
	Depreciation @ 40%	3,54,240
	Closing Value of year 4	5,31,360
	Opening Balance of the year 5	5,31,360
	Depreciation @ 40% ($ 531,360 - $ 420,000)	1,11,360
	Closing Value of year 5	4,20,000
	DEPRECIATION SCHEDULE AS PER STRAIGHT LINE METHOD
	Years	Purchase Cost (Including installation and delivery Cost)	Depreciation	Accumulated Depreciation	Closing Value
	Year 1	41,00,000	7,36,000	7,36,000	33,64,000
	Year 2	-	7,36,000	14,72,000	26,28,000
	Year 3		7,36,000	22,08,000	18,92,000
	Year 4		7,36,000	29,44,000	11,56,000
	Year 5		7,36,000	36,80,000	4,20,000
	DEPRECIATION SCHEDULE AS PER REDUCING BALANCE METHOD
	Years	Purchase Cost (Including installation and delivery Cost)	Depreciation	Accumulated Depreciation	Closing Value
	Year 1	41,00,000	16,40,000	16,40,000	24,60,000
	Year 2	-	9,84,000	26,24,000	14,76,000
	Year 3		5,90,400	32,14,400	8,85,600
	Year 4		3,54,240	35,68,640	5,31,360
	Year 5		1,11,360	36,80,000	4,20,000