QUESTION 6 Not complete Points out of4.00 Rag question Computing Straight-Line a
ID: 2570321 • Letter: Q
Question
QUESTION 6 Not complete Points out of4.00 Rag question Computing Straight-Line and Double-Declining-Balance Depreciation On January 2, 2016, Fischer Company purchases a machine that manufactures a part for one of its key products. The machine cost $264,600 and is estimated to have a useful life of six years, with an expected salvage value of $22,500. Compute depreciation expense for 2016 and 2017 for the following depreciation methods. a. Straight-line. b. Double-declining balance. 2016 2017 Straight-line CheckExplanation / Answer
Solution:
Part a) Calculation of Depreciation Expense for Year 2016 and 2017 using Straight Line Method
Straight Line Method
Straight line method is a method of calculating depreciation of an asset.
Under this method depreciation is calculated by dividing depreciable asset value by estimated useful life.
In this method, there is same depreciation each year.
Depreciable Asset Value = Cost of Asset – Salvage Value
Mathematically,
Annual Depreciation = (Cost of Asset – Salvage Value) / Useful life
= (264,600 – 22,500) / 6
= $40,350
Year 2016 Depreciation Expense = $40,350
Year 2017 Depreciation Expense = $40,350
Part a) Calculation of Depreciation Expense for Year 2016 and 2017 using Double Declining Method
Declining-balance method at double the straight-line rate
It is a method of depreciation used by the companies when they want to quickly depreciate an asset.
The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.
Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.
The formula for double declining balance is:
Annual depreciation = Book Value * 100% / life * 2
Calculate the percentage that should be used first.
Percentage = 100% / Useful Life x 2
Once the percentage is calculated, it is the same for the rest of the asset’s life.
Depreciation Rate = 100% / 6 x 2 = 33.333%
Year
DDB Depreciation for the period
End of Period
Beginning of period book value
Depreciation Rate
Depreciation Expenses
Accumulated Depreciation
Book Value
2016
264,600
33.33333%
88,200
88,200
176,400
2017
176,400
33.33333%
58,800
147,000
117,600
Year 2016 Depreciation Expense = $88,200
Year 2017 Depreciation Expense = $58,800
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Year
DDB Depreciation for the period
End of Period
Beginning of period book value
Depreciation Rate
Depreciation Expenses
Accumulated Depreciation
Book Value
2016
264,600
33.33333%
88,200
88,200
176,400
2017
176,400
33.33333%
58,800
147,000
117,600
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