Answer:
Depreciation expense for 2016 2017 2018
Method: Straight-line $15,833 $15,833 $15,833
Double-declining $36,663 $24,443 $16,296
The revision of the estimates at the beginning of 2018 would lead to lower yearly depreciation expense.
Explanation:
(a) Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($110,000 - $15,000) / 6 years = $15,833 yearly depreciation expense. This depreciation expense of $15,833 applies to Years 2016, 2017 and 2018. Accumulated depreciation for those years is $15,833 x 3 years $47,499.
(b) The double-declining method is otherwise known as the reducing balance method and is given by the formula below:
Double declining method = 2 X SLDP X BV
SLDP = straight-line depreciation percentage
BV = Book value
SLDP is 100%/6 years = 16.67%, then 16.67% multiplied by 2 to give 33.33%
At Year 2016, 33.33% X $110,000 = $36,663
At Year 2017, 33.33% X $73,337 ($110,000 - $36,663) = $24,443
At Year 2018, 33.33% X $48,894 ($73,337 - $24,443) = $16,296
Accumulated depreciation expense for Years 2016 to 2018, under this method, is $77,402 (addition of all the yearly depreciation).
(c) If after 2 years, the revised estimated useful life becomes 7 years and the residual value is $10,000, depreciation would be calculated as follows:
Under the straight-line method, NBV (net book value) at the end of 2017 is: $110,000 - $15,833 x 2 years = $78,334
Depreciation expense is: ($78,334 - $10,000) / 7 years = $9,762 (decrease in 2018 yearly depreciation charge)
Under the double-declining method, SLDP is 100%/7 years = 14.29%, then multiplied by 2 to give 28.57%.
At Year 2018, 28.57% X $48,894 ($73,337 - $24,443) = $13,969 (decrease in 2018 yearly depreciation charge)
