Question

A piece of equipment is purchased for $110,000 and has an estimated salvage value of $10,000 at the end of the recovery period. (a) Prepare a depreciation schedule for the piece of equipment using the straight-line method with a recovery period of seven years. (b) Prepare a depreciation schedule for the piece of equipment using the sum-of the-years method. (c) Prepare a depreciation schedule using the 200% declining balance method. (d) Prepare a depreciation schedule using the 150% declining balance method.

Answer 1

Answer:

Depreciation schedule using Straight Line Method

                Straight      Sum of        200 % declining     150 % declining

                Line             the years    balance                   balance

                Method       Method       Method                   Method

Year 1      $ 14,285     $ 25,000     $   31,427                $  23,570

Year 2    $ 14,285      $  21,429      $   22,448              $   18,520

Year 3    $ 14,285      $  17,857       $   16,035              $   14,551

Year 4    $ 14,285      $ 14,286        $   11,454               $   11,433

Year 5    $ 14,285      $  10,714        $     8,181               $    8,984

Year 6    $ 14,285      $    7,143        $    5,844              $   7,059

Year 7    $ 14,285       $   3,571`        $    4,174               $   5,546

Explanation:

Computation of Depreciation under the straight Line Method

Cost of equipment                                                                 $ 110,000

Salvage Value                                                                        $( 10,000)

Depreciable Basis                                                                  $ 100,000  

Estimated Useful Life                                                                  7 years

Depreciation % per year                                                             14.285%

Depreciation per year for each year                                          $ 14,285  

Computation of Depreciation under the Sum of the years method    

In a sum of the years balance method the no of years recovery life is added together as a denominator and the first year the highest depreciation is charged. The salvage value is considered and the depreciable basis is the same as the Straight Line Method

Sum of the years ( 7 + 6 + 5 + 4 + 3 + 2 + 1)    = 28

Depreciable basis                                                                      $ 100,000

Depreciation Year 1   7/28 * $ 100,000                                     $ 25,000

Depreciation Year 2   6/28 * $ 100,000                                    $ 21,429

Depreciation Year 3   5/28 * $ 100,000                                    $ 17,857

Depreciation Year 4   4/28 * $ 100,000                                    $ 14,286

Depreciation Year 5   3/28 * $ 100,000                                    $ 10,714

Depreciation Year 6   2/28 * $ 100,000                                    $  7,143

Depreciation Year 6   1/28 * $ 100,000                                     $  3,571

Computation of Depreciation under 200 % declining balance method

In a declining balance method the salvage value is not considered and the depreciation is applied on a declining balance on double the straight line method depreciation %        

Depreciable Basis - same as cost                                              $ 110,000

Depreciation Rate - 14.285 % * 2 = 28,57 %    

Depreciation for Year 1 - $ 110,000 * 28.57 % =                       $   31,427

Depreciation Basis for Year 2                                                    $   78,573

Depreciation for Year 2 - $ 78,573 * 28.57 % =                       $   22,448

Depreciation Basis for Year 3                                                    $   56, 125

Depreciation for Year 3 - $ 56,125 * 28.57 %                           $    16,035

Depreciation Basis for Year 4                                                    $   40,090

Depreciation for Year 4 - $ 40,090 * 28.57 %                          $    11,454

Depreciation Basis for Year 5                                                   $   28,636

Depreciation for Year 5 - $ 28,636 * 28.57 %                          $      8,181

Depreciation Basis for Year 6                                                    $   20,455

Depreciation for Year 6 - $ 20,455 * 28.57 %                          $     5,844

Depreciation Basis for Year 7                                                     $   14,611

Depreciation for Year 7 - $ 14,611 * 28.57 %                              $     4,174

Computation of Depreciation under 150 % declining balance method

In a declining balance method the salvage value is not considered and the depreciation is applied on a declining balance on one and half times  the straight line method depreciation %        

Depreciable Basis - same as cost                                              $ 110,000

Depreciation Rate - 14.285 % * 1.50 = 21,4275 %    

Depreciation for Year 1 - $ 110,000 * 21.4275 % =                   $   23,570

Depreciation Basis for Year 2                                                    $   86,430

Depreciation for Year 2 - $ 86,430 * 21.4275 % =                   $   18,520

Depreciation Basis for Year 3                                                    $  67,910

Depreciation for Year 3 - $ 67,910 * 21..4275 %                      $   14,551

Depreciation Basis for Year 4                                                    $   53,359

Depreciation for Year 4 - $ 53,359 * 21.4275 %                       $    11,433

Depreciation Basis for Year 5                                                   $   41,925

Depreciation for Year 5 - $ 41,925 * 21.4275 %                        $     8,984

Depreciation Basis for Year 6                                                   $   32,942

Depreciation for Year 6 - $ 32,944 * 21.4275 %                      $     7,059

Depreciation Basis for Year 7                                                     $  25,883

Depreciation for Year 7 - $ 25,883 * 21.4275 %                        $     5,546

Answer 2

Answer:

Year //dep expense //ac dep //book value

-                                     $110,000.00

1  $14,285.71   $14,285.71   $95,714.29

2  $14,285.71   $28,571.43   $81,428.57

3  $14,285.71   $42,857.14   $67,142.86

4  $14,285.71   $57,142.86   $52,857.14

5  $14,285.71   $71,428.57   $38,571.43

6  $14,285.71   $85,714.29   $24,285.71

7  $14,285.71   $100,000.00   $10,000.00

SUM OF YEARS

Year //factor// dep expense //ac dep //book value

-                                                       $110,000.00

1  0.25     $25,000.00   $25,000.00   $85,000.00

2  0.21     $21,428.57   $46,428.57   $63,571.43

3  0.18     $17,857.14   $64,285.71   $45,714.29

4  0.14     $14,285.71   $78,571.43   $31,428.57

5  0.11     $10,714.29   $89,285.71   $20,714.29

6  0.07     $7,142.86   $96,428.57   $13,571.43

7  0.04     $3,571.43   $100,000.00   $10,000.00

200% double declining:

$\left[\begin{array}{ccccc}Year&Beginning&Dep-Expense&Acc. \: Dep&Ending\\0&-&-&-&110000\\1&110000&31428.57&31428.57&78571.43\\2&78571.43&22448.98&53877.55&56122.45\\3&56122.45&16034.99&69912.54&40087.46\\4&40087.46&11453.56&81366.1&28633.9\\5&28633.9&8181.11&89547.21&20452.79\\6&20452.79&5843.65&95390.86&14609.14\\7&14609.14&4609.14&100000&10000\\\end{array}\right]$

150% accelerated depreaciation:

$\left[\begin{array}{cccccc}Year&Beginning&Dep-Expense&Acc. \: Dep&Ending\\0&-&-&-&110000\\1&110000&23571.43&23571.43&86428.57\\2&86428.57&18520.41&42091.84&67908.16\\3&67908.16&14551.75&56643.59&53356.41\\4&53356.41&11433.52&68077.11&41922.89\\5&41922.89&8983.48&77060.59&32939.41\\6&32939.41&7058.45&84119.04&25880.96\\7&25880.96&15880.96&100000&10000\\\end{array}\right]$

Explanation:

Straight Line:

Acquisition Value 110,000

Salvage Value 10,000

ammount subject to depreciation 100000

Useful Life 7

depreciation per year:

depreciable amount divided by useful life  14285.71

This amount is repeatead throughout the life of the equipment.

SUM OF YEARS FACTORS:

sum of year: 7*8/2 = 28

remaining years over sum of year

1st               7/28

2nd            6/28

3rd             5/28

4th             4/28

5th             3/28

6th             2/28

7th             1/28

Double declining 200%

we have to multiply 1/useful life by the double declining facot

in this case as it is 200% it will be 2.

threfore the carrying vlue is multiplied by 2/7 each year to determinatethe depreciation expense

declining 150%

here we multiply by 1.5 resulting in a factor of 3/14 to obtain the depreciation expense