Question

A storage tank acquired at the beginning of the fiscal year at a cost of $75,000 has an estimated residual value of $10,000 and an estimated useful life of 20 years. Determine the following:
(A) the amount of annual depreciation by the straight-line method.
(B) the amount of depreciation for the first and second years computed by the double-declining-balance method.

Answer 1

Answer:

A. $3,250

B. $7500

$6750

Explanation:

A. Depreciation expense using the straight line depreciation method :

(Actual cost - Salvage value) / number of years

= ($75,000 - $10,000) / 20 = $3,250

B. Depreciation expense using the double declining depreciation method :

( Actual cost / number of years ) × 2

For year 1 = ($75,000/20) × 2 = $7500

Net book value = $75,000 - $7500 =$67,500

Depreciation expense for year 2 = ( $67500 / 20 ) × 2 = $6750