Question

The Upjohn Company purchased new packaging equipment with an estimated useful life of five years. The cost of the equipment was $55,000, and the salvage value was estimated to be $5,000 at the end of year 5. Compute the annual depreciation expenses over the five-year life of the equipment under each of the following methods of book depreciation:a.Straight-line methodb.Double-declining-balance method

Answer 1

Answer: a). Straight line method = $10,000. b). Double declining balance method = $20,000.

Explanation: Depreciation is the weat and tear of an asset over the useful life. There are several methods of depreciation. They include; straight line method, double-declining method, units of production method and so on.

Straight line method = (cost - salvage value)/ useful life

= (55000 - 5000)/5 = 50000/5

= $10,000

Double-declining balance method = straight line method × 2

= $10,000 × 2

= $20,000