Question

Ajax Company bought equipment for $2,500. The company estimates that the equipment’s period of useful life will be 5 years. After 5 years the residual value is $500. Calculate depreciation expense and complete a depreciation schedule

Answer 1

1. Using Straight line method

Straight line Method
A	Cost	$           2,500.00
B	Residual Value	$              500.00
C=A - B	Depreciable base	$           2,000.00
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$   400.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     2,500.00	$   400.00	$ 2,100.00	$     400.00
2	$     2,100.00	$   400.00	$ 1,700.00	$     800.00
3	$     1,700.00	$   400.00	$ 1,300.00	$ 1,200.00
4	$     1,300.00	$   400.00	$     900.00	$ 1,600.00
5	$         900.00	$   400.00	$     500.00	$ 2,000.00

1. Using Double declining method

Double declining Method
A	Cost	$     2,500.00
B	Residual Value	$        500.00
C=A - B	Depreciable base	$     2,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$        400.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     2,500.00	40.00%	$ 1,000.00	$ 1,500.00	$         1,000.00
2	$     1,500.00	40.00%	$     600.00	$     900.00	$         1,600.00
3	$         900.00	40.00%	$     360.00	$     540.00	$         1,960.00
4	$         540.00	40.00%	$        40.00	$     500.00	$         2,000.00
5	$         500.00	40.00%	$               -	$     500.00	$         2,000.00