Question

Computing Straight-Line and Double-Declining-Balance Depreciation
On January 2, 2016, Fischer Company purchases a machine that manufactures a part for one of its key products. The machine cost $264,600 and is estimated to have a useful life of six years, with an expected salvage value of $22,500.

Compute depreciation expense for 2016 and 2017 for the following depreciation methods.
a. Straight-line.
b. Double-declining balance.

	2016	2017
Straight-line	$Answer	$Answer
Double-declining	Answer	Answer

Answer 1

	2016	2017
Straight Line	$40,350	$40,350
Double Declining	$88,200	$58,800

(a)-Straight Line Depreciation Method

Straight line Depreciation = [Cost of the asset – Salvage Value] / Useful Life

= [$264,600 - $22,500] / 6 Years

= $242,100 / 6 Years

= $40,350 per year

(b)-Double Declining Depreciation Method

Depreciation under Double Declining Method is calculated by using the following formula

Depreciation Expense = Book Value Beginning x Depreciation Rate

Depreciation Rate = 2 x (1 / Useful Life]

= 2 x (1/6)

= 0.3333 or 33.33%

Depreciation Expenses for 2016 = $88,200 [$364,600 x 0.3333]

Depreciation Expenses for 2017 = $58,800 [($264,600 - $88,200) x 0.3333]