Question

Consider the following data on an​ asset:        

                                                                                                                                                                                                                                                                                                                                                                                                                                       

        

Cost of the​ asset, I	​$202 ,000
Useful​ life, N	5 years
Salvage​ value, S	​$70,000

Compute the annual depreciation allowances and the resulting book values.

Use the​ double-declining-balance method. Fill in the table below. ​(Round to the nearest​ dollar.)

n	Dn		Bn
1	​$_____		​$______
2	​$_____		​$_____

Answer 1

Solution:-

a) Compute of annual depreciation allowances resulting the book value:

Given Data,

Cost of asset (I)= 202,000

Useful life(N)= 5 Years

Salvage Value= $70,000

Depreciation per Year = (Cost – Salvage value)/No. of years

                                    = (202,000-70,000)/5

                                = 132,000/5

Depreciation per Year= $26,400

Year	Opening Value	Depreciation	Closing Book Value
1	202,000	26,400	175,600
2	175,600	26,400	149,200

(*Closing Book Value= Opening Value- Depreciation) & (Closing Value for the 1st Year = Opening Value of the next Year)

b) Double declining balance method:

Decline Balance Rate = 2*(1/Useful Life)

                                    = 2* (1/5)

   =2*0.2

Decline Balance Rate= 0.4 or 40%

End of Year	Depreciation	Book Value
1	0.4*202,000=80,800	202,000-80,800=121,200
2	0.4*121,200=48,480	121,000-48,480=72,520