Question

Dannys company purchased a machine for 100,000.00

Useful Life 5 years (book and tax)

No Salvage value

Record depreciation for years using Straight Line

Double decline balance MACRS

Answer 1

Straight line method:

Working:

= 1,00,000-0/5 = 20,000 every year

Journal Entries will be as follows:

Year 1: Depreciation a/c Dr. 20,000

To Machinery a/c 20,000

Profit & Loss a/c Dr. 20,000

To Depreciation a/c 20,000

Year 2 -5 (will be same entries as in Year 1)

Double declinig balance Method:

Working:

=(20,000/1,00,000)*100 = 20%

As per normal depreciation the depreciation rate is 20% and as per double declining balance method the depreciation rate will be doubled i.e., 40% every year, it is called accelerated depreciation method and accordingly depreciation for every year would be 40,000 (1,00,000*40%).

Journal Entries for the same:

Year 1: Depreciation a/c Dr. 40,000

To Fixed asset a/c 40,000

Profit & Loss a/c Dr. 40,000

To Depreciation a/c 40,000

Note: The machinery will get depreciated in 3rd year itself if double declinig balance method is followed.