Question

On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $45,250. The expenditures made to acquire the asset were as follows:

Purchase price	$	203,500
Freight charges		5,600
Installation charges		8,500

Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life.

Required:

1. Calculate depreciation for each year of the asset’s eight-year life.

	Depreciation for the Period	End of Period
Year	Booking of Period book value	Depreciation rate		Annual Depreciation	Accumulated Depreciation	Book Value
2018			%
2019			%
2020			%		0	0
2021			%
2022
2023
2024
2025
Total				$

Answer 1

Solution :

Depreciation rate SLM = 1/8 = 12.50%

Depreciation rate double declining method = 12.50*2 = 25%

Initial cost of equipment = $203,500 + $5,600 + $8,500 = $217,600

Computation of Depreciation of each year
Year	Beginning Book Value	Depreciation Rate	Annual Depreciation	Accumulated Depreciation	Ending book value
2018	$217,600.00	25%	$54,400.00	$54,400.00	$163,200.00
2019	$163,200.00	25%	$40,800.00	$95,200.00	$122,400.00
2020	$122,400.00	25%	$30,600.00	$125,800.00	$91,800.00
2021	$91,800.00	25%	$22,950.00	$148,750.00	$68,850.00
2022	$68,850.00		$5,900.00	$154,650.00	$62,950.00
2023	$62,950.00		$5,900.00	$160,550.00	$57,050.00
2024	$57,050.00		$5,900.00	$166,450.00	$51,150.00
2025	$51,150.00		$5,900.00	$172,350.00	$45,250.00
Total			$172,350.00

Ending book value at end of 2021 using DDB = $68,850

Salvage value at end of 8 years = $45,250

Annual depreciation using SLM = ($68,850 - $45,250)/4 = $5,900