Windsor Company acquired a plant asset at the beginning of Year 1. The asset has

Question

Windsor Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.

Year

Straight-Line

Sum-of-the-
Years'-Digits

Double-Declining-
Balance

What is the cost of the asset being depreciated?

What amount, if any, was used in the depreciation calculations for the salvage value for this asset?

Year

Straight-Line

Sum-of-the-
Years'-Digits

Double-Declining-
Balance

1 $12,420 $20,700 $27,600 2 12,420 16,560 16,560 3 12,420 12,420 9,936 4 12,420 8,280 5,962 5 12,420 4,140 2,042 Total $62,100 $62,100 $62,100

Explanation / Answer

Depreciation under Double declining balnce method = (cost - accumulated depreciation) / useful life * 2

Depreciation in the year 1 under Double declining balnce method = 27,600

27,600 = (cost - 0) / 5 * 2

Cost = 69,000

Cost of the asset being depreciated = 69,000

Depreciation under Straight line method = (cost - salvage value) / useful life

Depreciation in the Year 1 under Straight line method = 12,420

12,420 = (69,000 - salvage value) / 5

Salvage value = 6,900

Salvage value for this asset = 6,900

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