Question

Freedom Co. purchased a new machine on July 2, 2016, at a total installed cost of $49,000. The machine has an estimated life of five years and an estimated salvage value of $6,700.

Required:

a-1. Calculate the depreciation expense for each year of the asset's life using Straight-line depreciation.

Year	Depreciation Expense
1	$8,460
2	$8,460
3	$8,460
4	$8,460
5	$8,460

a-2. Calculate the depreciation expense for each year of the asset's life using Double-declining-balance depreciation.

Year	Depreciation Expense
1	$19,600
2	$11,760
3	$7,056
4	$3,884
5	$0

b. How much depreciation expense should be recorded by Freedom Co. for its fiscal year ended December 31, 2016, under each method? (Note: The machine will have been used for one-half of its first year of life.)

	Depreciation Expense
Straight‑line	$4,230
Double-declining balance	$9,800

c. Calculate the accumulated depreciation and net book value of the machine at December 31, 2017, under each method.

	Cost	Accumulated Depreciation	Net Book Value
Straight‑line	$49,000	$0	$0
Double-declining‑balance	49,000	0	0

Answer 1

A-1) depreciation under straight line method

That is( cost - salvage value)/no of years

That is ( 49000-6700)/5= 8460 per year

B) depreciation under double declining method

Double declining rate is 8460/42300×2 = 40per

Year	beginning book value	×	dep rate	depreciation	ending book value
1	49000	×	40%	19600	29400
2	29400	×	40%	11760	17640
3	17640	×	40%	7056	10584
4	10584	×	40%	3884(as slavge value cannot be depreciatec)	6700
5		×	40%		0

B)as machine is used for half year only depreciation recognised is

In straight line =8460/2=4230(only half year should be taken)

In double declining= 19600/2= 9800

C) under straight line method

Accumulated depreciation is 8460/2+ 8460= 12690

Net book value is 36310

Under double declining

Accumulated depreciation is

19600/2( for first year)+ 19600/2+11760/2= 25480

Net book value is 23520

in question a no specific date is provided so we caluculate for year but not up to 31st December of every year where as from question 2 date is provided specifically so we caluculate depreciation only half for first year