ONJULY 1, 2015 DOLBY CORP PURCHASED SOME NEW EQUIPMENT TO BE USED IN THEIR RECOR
ID: 2512678 • Letter: O
Question
ONJULY 1, 2015 DOLBY CORP PURCHASED SOME NEW EQUIPMENT TO BE USED IN THEIR RECORDING STUDIO. THE T COST $70,000 AND IT IS EXPECTED TO E VALUE OF $8,000 AFTER ITS USEFUL LIFE OF 6 YEARS. IT IS ESTIMATED THAT THE ED FOR 32,000 HOURS OF RECOR E YEARS 2015 AND 2016 RESPECTIVELY. MACRS (TAX) DEPRECIATIO THE 6 YEARS. DOLBY USED THE EQUIPMENT FOR 8,000 HOURS AND 9,000 HOURS FOR Th SPECIFIES A FIVE-YEAR RECOVERY PERIOD FOR THIS ASSET. T HE IRS TABLE SHOWS THE FOLLOWING PERCENTAGES FOR DEPRECIATION: YEAR PERCENTA GE FIRST 20% EXPENSE FOR 2015 AND FOR 2016 USING (a) the straight-line 32% THIRD 19.20% ALO ULATE THE DEPRECIATION method, (b) the DDB method, (3) the units of activity method, and (4) the MACRS method.Explanation / Answer
Straight Line Method - In this method, we simply divide the value of the assets among it's useful life deducting its salvage value if there is any. The depreciation will be same in all years.
Depreciation = Cost of assets - Salvage value
Useful life in years
Depreciation per year as per above formula = (70,000-8,000)/ 6 years = 10,333.33 per year.
2. DDB i.e. double declining method - In DDB, the depreciation is charged at double rate as compare to SLM depreciton rate. The formula is 2x SLM depreciation rate.
Rate in SLM as calculated above = 10,333.33/70,000x100 = 14.76%
the rate will be doubled = 2x 14.76 = 29.52%
Dep in 2015 @ 29.52% = 70,000x29.52% = 20,666.37
Dep in 2016 on reduced amo=(70,000-20667.37)x29.52% = 14,565.08
3. Units of activity method - IN this method we will charge depreciation as per the use of the asset. The total hours the machine can work are 32,000. out of which 8,000 will be used in 2015 and 9000 will be in 2016.hence depreciaton will be -
2015 - 70,000/32,000 x 8,000 = 17,500
2016 - 70,000/32,000x9,000 = 19687.50
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