Question

4. Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense in the first year using the declining balance method will be

Answer 1

• Depreciation Expense in the first year using the declining balance method will be $ 70,800
• Answer = $ 70,800
• Working

The cost of the equipment will include purchases cost, freight cost and installation related charges.

A	Cost [150000 + 7000 + 20000]	$          177,000.00
B	Residual Value	$            30,000.00
C=A - B	Depreciable base	$          147,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$            29,400.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

Year 1 Depreciation = $ 177,000 x 40% = $ 70,800