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Equipment costing $590,000 with an expected useful life of 10 years and an expected salvage value...

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Accounting

Equipment costing $590,000 with an expected useful life of 10years and an expected salvage value of $40,000, was purchased atthe beginning of the year.

Calculate the depreciation expense for the first five yearsusing:

(a) Sum-of-the-years' digits method. Do not round until finalcalculation. Round answers to the nearest whole number.

(b) Double-declining balance method (without straight-lineswitchover). Do not round until final calculation. Round answers tothe nearest whole number.

Answer & Explanation Solved by verified expert
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Solution a:

Computation of Depreciation - Sum of digit of years
Year Asset Cost Depreciation Base Remaining life of asset Depreciation fraction Depreciation Expense Accumulated Depreciation Ending Book Value
Purchase Date $590,000.00
1 $550,000.00 10 10/55 $100,000 $100,000 $450,000
2 $550,000.00 9 9/55 $90,000 $190,000 $360,000
3 $550,000.00 8 8/55 $80,000 $270,000 $280,000
4 $550,000.00 7 7/55 $70,000 $340,000 $210,000
5 $550,000.00 6 6/55 $60,000 $400,000 $150,000

Solution b:

Depreciation rate - SLM = 1/10 = 10%

Depreciation rate - DDB = 10%*2 = 20%

Depreciation Schedule - Double Declining Balance Method
Date Asset Cost Book Value Depreciation Rate (10%*2) Depreciation Expense for the year Accumulated Depreciation Ending Book Value
Purchase Date $590,000
1 $590,000 20% $118,000 $118,000 $472,000
2 $472,000 20% $94,400 $212,400 $377,600
3 $377,600 20% $75,520 $287,920 $302,080
4 $302,080 20% $60,416 $348,336 $241,664
5 $241,664 20% $48,333 $396,669 $193,331

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