Grouper Corp. purchased a boardroom table for $17,840. The company planned to ke

Question

Grouper Corp. purchased a boardroom table for $17,840. The company planned to keep it for four years, after which it was expected to be sold for $980.

Assuming Grouper sold the table for $5,320 at the end of the third year, calculate the gain or loss on disposal under each depreciation method.

Determine the impact on net income (total depreciation of the table plus any loss on disposal or less any gain on disposal) of each method over the entire three-year period.

Which method of depreciation do you believe is the most appropriate for a boardroom table?

(1) Straight-line method Year1 s Year 2 s Year 3 s (2) Double-diminishing-balance method. Year1 s Year 2 s Year 3 s

Explanation / Answer

1)Depreciation under straight line =[Cost-salvage]/life

=[17840-980]/4

=4215

year 1: 4215

Year2 :4215

year3:4215

**Book value at end of year3 =17840-[4215*3]= 5195

2)Depreciation rate =2 /useful life

= 2/4 = .50 or50%

3)Gain/loss=sale value-book value

straight line :5320-5195= 125 gain

double declining :5320-2230 = 3090 gain

4)straight line :Gain -Total depreciation

125- [4215*3] = 125-12645=$ -12520 decrease

double declining = 3090-[8920+4460+2230]

= 3090-15610]

= -12520 decrease

5)straightline method as the table is going to be used equally over its useful life .so depreciation should be charged according to the benefit driven from table.

year Depreciation carrying value at end 1 17840*.50=8920 17840-8920=8920 2 8920*.50=4460 8920-4460=4460 3 4460*.50=2230 4460-2230=2230

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