An asset was purchased and placed in service by a petroleum production company,
ID: 419639 • Letter: A
Question
An asset was purchased and placed in service by a petroleum production company, Its cost basis is $70,000, and it has an estimated MV of $12,000 at the end estimated useful life of 17 years. Compute the depreciation amount in the second year and the BV at the end of the fourth year of life by each of these methods a. The SL method. b. The 200% DB method with switchover to SL. c. The GDS d. The ADS Click the icon to view the partial listing of depreciable assets used in business Click the icon to view the GDS Recovery Rates( a. Using the SL method the depreciation amount in the second year is s(Round to the nearest dolar) Using the SL method the BV at the end of the fourth year of life is Round to the nearest dollar ) b Using the 200% DB method the depreciation amount in the second year is S Round to the nearest dollar Using the 200% DB method the BV at the end of the fourth year of life is $ (Round to the nearest dollar) c. Using the GDS the depreciation amount in the second year is S?(Round to the nearest dollar ) Using the GDS the BV at the end of the fourth year of lif is s(Round to the nearest dollar) d. Using the ADS the depreciation amount in the second year is s(Round to the nearest dollar) Using the ADS the BV at the end of the fourth year of life is s(Round to the nearest dollar.) Enter your answer in each of the answer boxes ENG8:35 PMExplanation / Answer
a. Depreciation per year = purchase value - book value / useful life in years
= 70000-12000/17 = 3411.76 per year
Depreciation in second year = 2x3411.76 = 6823.52
Book value in second year = 70000-6823.52 = 63176
b. Under 200% DB method, the depreciation amount in the first year = [ 70000 -12000 / 17 ] x 2 =6823.52
Depreciation rate = 1/17 = 5.88%
Depreciation in the second year = [ 58000-6823.5] x2 x5.88% = 6018.35
Depreciation in year 3 = [58000-12841] x2x5.88% = 5310
Depreciation in year 4 = [ 58000- 12841-5310] x2x5.88% =4686
Book value = 58000 - 12841-5310-4686 +12000 = 47163
(c) Under GDS, rate of depreciation is 5.88% per year on declining balance
Depreciation in first year = 58000x5.88% = 3410
Depreciation in second year = (58000-3410) x5.88% =3209
Depreciation in year 3 = ( 58000-3410-3209)x5.88% =3021
Depreciation in year 4 = ( 58000-3410-3209-3021) x5.88% = 2843
BV at the end of year 4 = ( 70000- depreciation till year 4) = 57516
(d) Under ADS method, in the first and last year, there will be no depreciation. Therefore
Depreciation amount in the SL method
58000/15 =3866 from year 2 to year 16
Depreciation amount in year 2 = 3866
Depreciation amount in year 3= 7733
Depreciation amount in year 4 = 11599
Book value at the end of year 4 = 70000-11599 =58401
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