A plant assets required at a total cost of $37,500 has an estimated scrap value
ID: 2421078 • Letter: A
Question
A plant assets required at a total cost of $37,500 has an estimated scrap value of %2,500 and an anticipated useful life of 7 years. Determine:
1. The annual rate (expressed as a percentage or fraction) of depreciation using the straight-line-method.
2. The annual depreciation using the double declining balance method.
3. The first year's straight-line depreciation, assuming that the asset was acquired 3 months into the current accounting period.
4. Continuing with assumption (3), the value of the accumulated depreciation account after the second year's depreciation is recognized.
5. The residual value for the plant assets after the asset has been depreciated for 7 years.
Using the information presented at the beginning of the exercise, determine the five items assuming asset depreciation and using the double-declining method of recognizing depreciation.
Explanation / Answer
STRAIGHT LINE METHOD =$37,500 - $2,500/ 7 = $5,000
= $5,000/37,500
= 13.33%
DOUBLE DECLINING METHOD = STRAIGHT LINE RATE * 2
= 26.67 %
DEPRECIATION SCHEDULE (STRAIGHT-LINE METHOD)
Depreciation Schedule
#
Beginning
Value
Depreciation
Expense
Accumulated
Depreciation
Ending
Value
1
$37,500
$1,250
$1,250
$36,250
2
$36,250
$5,000
$6,250
$31,250
3
$31,250
$5,000
$11,250
$26,250
4
$26,250
$5,000
$16,250
$21,250
5
$21,250
$5,000
$21,250
$16,250
6
$16,250
$5,000
$26,250
$11,250
7
$11,250
$5,000
$31,250
$6,250
8
$6,250
$3,750
$35,000
$2,500
Calculation asuuming asset brought at starting of the year
DEPRECIATION UNDER DOUBLE DECLINING METHOD
#
Year
Beginning
Value
%
Depreciation
Expense
Accumulated
Depreciation
Ending
Value
1
2011
$37,500
28.57%
$10,714
$10,714
$26,786
2
2012
$26,786
28.57%
$7,653
$18,367
$19,133
3
2013
$19,133
28.57%
$5,466
$23,834
$13,666
4
2014
$13,666
28.57%
$3,905
$27,738
$9,762
5
2015
$9,762
28.57%
$2,789
$30,527
$6,973
6
2016
$6,973
28.57%
$1,992
$32,520
$4,980
7
2017
$4,980
28.57%
$1,423
$33,943
$3,557
Depreciation Schedule
#
Beginning
Value
Depreciation
Expense
Accumulated
Depreciation
Ending
Value
1
$37,500
$1,250
$1,250
$36,250
2
$36,250
$5,000
$6,250
$31,250
3
$31,250
$5,000
$11,250
$26,250
4
$26,250
$5,000
$16,250
$21,250
5
$21,250
$5,000
$21,250
$16,250
6
$16,250
$5,000
$26,250
$11,250
7
$11,250
$5,000
$31,250
$6,250
8
$6,250
$3,750
$35,000
$2,500
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