Explanation:
The computation is shown below:
1. Under the straight line method
= (Purchase value of an equipment - salvage value) ÷ (service life)
= ($480,000 - $43,200) ÷ (12 years)
= ($436,800) ÷ (12 years)
= $36,400
In this method, the depreciation is same for all the remaining useful life
So
Year 1 = $36,400
Year 2 = $36,400
Year 3 = $36,400
2. Under the sum of the years digit method
Depreciation factor is
= n × (n + 1) ÷ 2
= 12 × (12 + 1) ÷ 2
= 78
Now the depreciation expense is
Year 1
= ($480,000 - $43,200) × (12 years) ÷ (78 years)
= $67,200
Year 2
= ($480,000 - $43,200) × (11 years) ÷ (78 years)
= $61,600
Year 3
= ($480,000 - $43,200) × (10 years) ÷ (78 years)
= $56,000
