Question

# Calculate depreciation. A piece of construction equipment cost \$2,000,000 when UGACo purchased it on April 1,...

Calculate depreciation.

A piece of construction equipment cost \$2,000,000 when UGACo purchased it on April 1, 2014. Its estimated salvage value is \$400,000 and its expected life is eight years.

Instructions

(1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used.

(a) Straight-line for 2014

(b) Double-declining balance for 2015

(c) Sum-of-the-years'-digits for 2015

(2) Which method would result in the smallest income amount for 2015?

1)

a) Straight line method for 2014

Straight line method = Asset cost - Salvage value/Expected life

= 2,000,000-400,000/8

= 200,000*9/12

Depreciation = 150,000

b) Double declining balance for 2015

Straight line rate * 2 * net book value

1/8 *2 = 25%

2014 depreciation = 2,000,000*25%*9/12

= 375,000

2015 depreciation = (2,000,000-375,000)*25%

= 406,250

c) Sum of year digits for 2015

n(n+1)/2 = 8(8+1)/2 = 36

1600000[(3/12*8/36)+(9/12*7/26)]

1600000*20.14% = 322,240

2) double declining balance method results smallest income

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