A tractor acquired on January 1 at a cost of $144,000 has an estimated useful li

Question

A tractor acquired on January 1 at a cost of $144,000 has an estimated useful life of six years. Assume that it will have no residual value.

Note: When calculating the depreciation rate, if the rate is not a whole number, carry the decimal place out at least six places. For example, if the straight-line rate is 6.666666...%, do not round; carry it out as many places as you can before doubling it to get the double-declining-balance rate.

a. Determine the depreciation for each of the first two years by the straight-line method.

b. Determine the depreciation for each of the first two years by the double-declining-balance method.

Depreciation First year $ Second year $

Explanation / Answer

Solution:

a. Determine the depreciation for each of the first two years by the straight-line method. Tracker acquired at cost $144,000 Estimated useful life is 6 years 6 Annual depreciation = Tracker cost/ Estimated life Annual depreciation = $144,000/6 = $24,000 $24,000 If the useful life is 6 yrs, the straight-line rate is 16.66667% Straight-line rate 1/6=0.166667X100=16.66667% $144,000X16.66667% = $24,000 In Straight line method Depreciation remains the same for all the years Depreciation First Year $24,000 Second Year $24,000 b. Determine the depreciation for each of the first two years by the double-declining-balance method. If the useful life is 6 yrs, the straight-line rate is 16.66667%, so the double-declining-balance rate is 33.33333% Straight-line rate 1/6=0.166667X100=16.66667% Double-declining-balance rate 1/6=0.166667X100=16.66667 X 2 =33.33333% Cost $144,000 $144,000 Y1 depreciation 48,000 ($144,000 x 33.33333%) $48,000 Book value at end of Y1 = $144,000-$48,000= $96,000 $96,000 Y2 depreciation 32,000 ($96,000 x 33.33333%) $32,000 Book value at end of Y2 = $96,000-$32,000 = $64,000 $64,000 Depreciation First Year $48,000 Second Year $32,000

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