Question

Machine A is purchased on January 1st 2017. The recorded cost of this machine was $80,000, the estimateded useful life is 4 years and the residual value is $ 5,000.

Assume that Machine A is sold on March 10th 2019. The business rounds depreciation calculations up or down to the nearest month. i.e., it does not depreciate for a partial month.

(1) What is the depreciation expense for 2019 for Machine A under the Straight Line Method.

(2) What is the depreciation expense for 2019 for Machine A under the Declining Balance Method.

Answer 1

(1)

Depreciation as per Straight line method = (Cost of asset - Residual value) / Life of asset

= (80,000 - 5,000) / 4

= 18,750

The depreciation expense for 2019 for Machine A under the Straight Line Method = 18,750 * 3/12

= 4,687.50

(2)

Depreciation expense under the Declining Balance Method @25%

Year
Cost	800000
Depreciation - 31 Dec 2017	20000 (80000 * 0.25)
Balance on 1st Jan 2018	60000
Depreciation - 31 Dec 2018	15000 (60000 * 0.25)
Balance on 1st Jan 2019	45000
Depreciation - 31 Dec 2019	11250 (45000 * 0.25)

Total depreciation for the Month of december = 11250

The Depreciation expense for 2019 for Machine A under the Declining Balance Method = 11250 * 3/12

= 2812.50