Question

Asset depreciation and disposition.
Answer each of the following questions. SHOW YOUR WORK.

1. A plant asset purchased for $500,000 has an estimated life of 10 years and a residual value of $25,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is $_____________.

2. A plant asset purchased for $440,000 at the beginning of the year has an estimated life of 5 years and a residual value of $40,000. Depreciation for the third year, determined by the sum-of-the-years'-digits method is $______________.

3. A plant asset with a cost of $540,000, estimated life of 5 years, and residual value of $90,000, is depreciated by the straight-line method. This asset is sold for $380,000 at the end of the second year of use. The gain or loss on the disposal (indicate by "G" or "L") is $___________.

Answer 1

1	Particulars	$
	cost of the Plant asset	500000
	estimated useful life	10 years
	Depreciation	50000
	Rate as per slm	10%
	Rate as per WDV	20%
	Depreciation as per WDV	$
	1 YEAR (500000*20%)	100000
	2 YEAR (300000*20%)	60000
2	Depreciation as per sum of years digit method
	(440,000-40000)*3/15	80000
3	Particulars	$
	Cost of plant asset	540000
	estimated useful life	5 years
	Residual value	90000
	Depreciation
	(540000-90000)/5	$        90,000
	Depreciation for two year	180000
	WDV of the asset
	(540000-180000)	360000
	Sale value of asset	380000
	Gain	20000