1- A machine, purchased for $45,000, has a depreciable life of 4 years. It will

Question

1- A machine, purchased for $45,000, has a depreciable life of 4 years. It will have an expected salvage value of $5,000 at the end of the depreciable life. Using the SOYD method, what is the depreciation amount for year 2?

2-A machine, purchased for $45,000, has a depreciable life of 4 years. It will have an expected salvage value of $5,000 at the end of the depreciable life. If the double declining balance (200% DB) method is used, what is the depreciation amount for year 2?

3- A machine, purchased for $45,000, has a depreciable life of 4 years. Suppose the estimated salvage value at the end of year 4 is to be $10,000, instead of $5,000. If the DDB method is used, what is the depreciation amount for year 3?

Explanation / Answer

1. Depreciation expenses for year 2 using SOYD method :

Sum of year = 4+3+2+1 = 10

depreciable amount = 45000-5000=40000

Year 2 dep = 40000*3/10 = 12000

2) Year 2 dep using double decline method :

straight line rate = 100/4 = 25%

double decline rate = 25*2=50%

Year 2 Dep = 45000*50%*50% = 11250

3) Year 3 dep using double decline method

Year 3 dep = 45000*50%*50%*50% = 5625

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