Answer:
(a) $50,000
(b) $5,000
(c) Double Declining Method.
(d) Straight-Line Method.
(e) Straight-Line Method.
(f) Double Declining Method.
Explanation:
(a) The cost of the asset being depreciated is $50,000.
By using values from Double Declining Method:
Cost of the Asset x DDB Rate = Depreciation Expense
or
Cost of the Asset x 40% = $20,000
Cost of the Asset = $50,000
Where DDB Rate is calculated as follows:
DDB Rate = 2 x (1 / useful life)
DDB Rate = 2 x (1 / 5)
DDB Rate = 2 x 20%
DDB Rate = 40%
(b) The Salvage value of this asset is $5,000.
Salvage Value = Cost of the Asset - Accumulated Depreciation
Salvage Value = $50,000 - $45,000
Salvage Value = $5,000
(c) The highest charge to income in Year 1 will be produced by Double Declining Balance Method.
(d) Straight-line method will produce the highest charge to income in Year 4 with $9,000.
(e) Straight Line:
Book Value = $50,000 - ($9,000 + $9,000 + $9,000)
Book Value = $23,000
Sum of the years' digits:
Book Value = $50,000 - ($15,000 + $12,000 + $9,000)
Book Value = $14,000
Double Declining:
Book Value = $50,000 - ($20,000 + $12,000 + $7,200)
Book Value = $10,800
Hence Straight Line method will produce the highest book value for the asset at the end of Year 3.
(f) If the asset is sold at the end of Year 3, Double Declining method would yield the highest gain (or lowest loss) on disposal of the asset, as it has the lowest book value at the end of year 3.
