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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.

Depreciation

20Y5 $ 900

20Y6 $ 3600

b. Determine the depreciation for 20Y5 and for 20Y6 by the double-declining-balance method.

Depreciation

20Y5 $

20Y6 $

+1
Answers (1)
  1. 10 December, 08:26
    0
    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
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