Question

Computing Depreciation Expense. Equipment costing $680,000, with an expected scrap value of $60,000 and an estimated useful life of 5 years, was purchased on January 1, 2012. Calculate the depreciation expense for years 2012 to 2016 using: (a) the straight-line method and (b) the double-declining-balance method. Round to the nearest whole number.

Answer 1

The depreciation expenses for the five years using the two depreciation methods are as follows:

Year                  Depreciation Expenses

                 Straight-Line        Double-Declining

                    Method                     Method

2012            $124,000                 $272,000

2013              124,000                    163,200

2014              124,000                      97,920

2015              124,000                      58,752

2016              124,000                       28,128

Data and Calculations:

Cost of Equipment = $680,000

Estimated Scrap value = $60,000

Estimated useful life = 5 years

Equipment purchase date = January 1, 2012

Depreciable amount = $620,000 ($680,000 - $60,000)

Straight-line Depreciation method:

Depreciation expense for each of the five years = $124,000 ($620,000/5)

Double-declining-balance method:

Depreciation rate per year = 40% (100/5 x 2)

Year       Depreciation                               Reduced

                Expense                                     Balance

2012       $272,000 ($680,000 x 40%)   $408,000 ($680,000 - $272,000)

2013         163,200 ($408,000 x 40%)      244,800 ($408,000 - $163,200)

2014           97,920 ($24,800 x 40%)         146,880 ($244,800 - $97,920)

2015          58,752 ($146,880 x 40%)           88,128 ($146,880 - $58,752)

2016          28,128 ($88,128 - $60,000)     60,000 ($88,128 - $28,128)

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