10 December, 08:02

# Sandblasting equipment acquired at a cost of \$42,000 has an estimated residual value of \$6,000 and an estimated useful life of 10 years. It was placed in service on October 1 of the current fiscal year, which ends on December 31, 20Y5.a. Determine the depreciation for 20Y5 and for 20Y6 by the straight-line method.Depreciation20Y5 \$ 90020Y6 \$ 3600b. Determine the depreciation for 20Y5 and for 20Y6 by the double-declining-balance method.Depreciation20Y5 \$20Y6 \$

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1. 10 December, 08:26
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a. Depreciation

20Y5 \$900

20Y6 \$3600

b. Depreciation

20Y5 \$2,100

20Y6 \$7,980

Explanation:

The computation of the depreciation expense for the second year is shown below:

a) Straight-line method:

= (Original cost - residual value) : (useful life)

= (\$42,000 - \$6,000) : (10 years)

= (\$36,000) : (10 years)

= \$3,600

In year 20Y5 the equipment is purchased on October 1 and we have to calculated till December 31. So, 3 months depreciation should be charged in year 1

= \$3,600 * (3 months : 12 months)

= \$900

And in year 20Y6, the depreciation expense is \$3,600

In this method, the depreciation is same for all the remaining useful life

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= Percentage : useful life

= 1 : 10

= 10%

Now the rate is double So, 20%

In year 20Y5, the original cost is \$42,000, so the depreciation is \$ 8,400 after applying the 50% depreciation rate. This is full month depreciation but we have to find for only 3 months.

So, \$8,400 * (3 months : 12 months)

= \$2,100

And, in year 20Y6, the depreciation expense would be

= (\$42,000 - \$2,100) * depreciation rate

= \$39,900 * 20%

= \$7,980