Question

Depreciation by Two Methods

Equipment acquired at the beginning of the fiscal year at a cost of $360,000 has an estimated residual value of $45,000 and an estimated useful life of 10 years.

a. Determine the amount of annual depreciation by the straight-line method.
$_____________

b. Determine the amount of depreciation for the first and second years computed by the double-declining-balance method.

	Depreciation
Year 1	$__________
Year 2	$__________

Answer 1

Part a)

Annual Depreciation by Straight line method = ( Cost of Asset -Estimated residual value) / Estimated life

= (360,000 - 45,000) / 10

= $31,500

Part b)

Under double declining balance the initial depreciation is charged double of straight line method.

Depreciation Rate = 1 / useful life x 2 = 1/10 x2 = 20%

First year depreciation = Cost of Asset 360,000 x 20% = 72,000

Second Year depreciation = Carrying value of Asset x 20%

= (360,000 - Accumulated depreciation till year 1 i.e. 72,000) x 20%

= $57,600

Hope all the above calculation is clear.