Use the tables below to determine Straight Line, Declining Balance, Sum-of-years
ID: 1227371 • Letter: U
Question
Use the tables below to determine Straight Line, Declining Balance, Sum-of-years Digits and MACRS GDS methods to calculate the yearly depreciation allowances and book values for a firm that has purchased $250,000 worth of office equipment that qualifies as depreciable property. The equipment is estimated to have a salvage (market) value of $50,000 (20% of the original cost) after the end of its depreciable life.
Use an 8-year life for the Straight Line, Declining Balance and Sum-of-years digits methods and the appropriate life for the MACRS GDS method.
Straight Line
Time
Dt (Depreciation in Year t)
BVt (Book Value in Year t)
0
1
2
3
4
5
6
7
8
Declining Balance
Time
Dt (Depreciation in Year t)
BVt (Book Value in Year t)
0
1
2
3
4
5
6
7
8
Sum-of-Years Digits
Time
Dt (Depreciation in Year t)
BVt (Book Value in Year t)
0
1
2
3
4
5
6
7
8
MACRS
Time
Dt (Depreciation in Year t)
BVt (Book Value in Year t)
0
1
2
3
4
5
6
7
8
Time
Dt (Depreciation in Year t)
BVt (Book Value in Year t)
0
1
2
3
4
5
6
7
8
Explanation / Answer
Working notes:
1) Annual depreciation, straight line (SLM) = (Cost - Salvage value) / useful life
= $(250,000 - 50,000) / 8 = $200,000 / 8 = $25,000
(2) Annual depreciation rate, declining balance (DB) = (1/8) = 0.125 (12.5%)
DB method ignores salvage value.
(3) Sum-of-years-digit = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36
Depreciation base under SOYD = $250,000 since it ignores salvage value.
Annual Depreciation % at beginning of year N = (8 +1 - N) x $250,000 = (9 - N) x $250,000
(4) MACRS depreciation schedule also ignores salvage value and Recovery period = 7 years
(5) There is no depreciation in year 0 for any methods.
Therefore:
(a) SLM Year Beginning Book value ($) Annual depreciation ($) Ending book value ($) 1 2,50,000 25,000 2,25,000 2 2,25,000 25,000 2,00,000 3 2,00,000 25,000 1,75,000 4 1,75,000 25,000 1,50,000 5 1,50,000 25,000 1,25,000 6 1,25,000 25,000 1,00,000 7 1,00,000 25,000 75,000 8 75,000 25,000 50,000 (b) Declining balance Year Beginning Book value ($) Annual depreciation ($) Ending book value ($) (A) (B) = (A) x 12.5% (B) - (A) 1 2,50,000 31,250 2,18,750 2 2,18,750 27,344 1,91,406 3 1,91,406 23,926 1,67,480 4 1,67,480 20,935 1,46,545 5 1,46,545 18,318 1,28,227 6 1,28,227 16,028 1,12,199 7 1,12,199 14,025 98,174 8 98,174 12,272 85,902 SOYD Year Book Value ($) Depreciation Factor Annual Depreciation ($) (A) (B) (A) x (B) 1 2,50,000 8/36 55,556 2 2,50,000 7/36 48,611 3 2,50,000 6/36 41,667 4 2,50,000 5/46 34,722 5 2,50,000 4/36 27,778 6 2,50,000 3/36 20,833 7 2,50,000 2/36 13,889 8 2,50,000 1/36 6,944 MACRS Year Book Value ($) Depreciation % Annual Depreciation ($) (A) (B) (A) x (B) 1 2,50,000 14.29 35,725 2 2,50,000 24.49 61,225 3 2,50,000 17.49 43,725 4 2,50,000 12.49 31,225 5 2,50,000 8.93 22,325 6 2,50,000 8.92 22,300 7 2,50,000 8.93 22,325 8 2,50,000 4.46 11,150Related Questions
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