Apache, Inc. purchased equipment at the beginning of 2011 for $91,000. In additi

Question

Apache, Inc. purchased equipment at the beginning of 2011 for $91,000. In addition, Apache paid $5,000 for delivery of the equipment to its plant and $5,000 for installation of the equipment. The equipment has an estimated salvage value of $9,000 and an estimated life of 8 years or 100,000 hours of operation. Apache is looking at alternative depreciation methods for the equipment. Determine the book value of the equipment at December 31, 2011, using the double-declining-balance depreciation method.

Explanation / Answer

Total Equipment cost=$91,000+$5,000+$5,000=$101,000

Depreciation as per SLM=($101,000-$9,000)/8=$92,000/8=$11,500

Depreciation rate as per SLM=($11,500/$92,000)*100=12.5%

Depreciation rate as per Double-declining balance depreciation method= 12.5%*2=25%

so depreciation=$92,000*25%=$23,000

Book value as on 3st december 2011=$101,000-$23,000)=$78,000

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