CALCULATING DEPRECIATION

As the manager of Dr. Smith and Dr. Brown’s practice, you need to decide whether to purchase new equipment. Use the following information for the depreciation method calculations. You must show your work in the blank cells provided.

 

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  1. Example of Straight-Line Depreciation Method

Use the following information to calculate the Straight Line

 

  • Fixed asset cost: $20,000
  • Useful life: five years
  • Residual value: $2,000

 

Table for question 1, fill in the blanks for rows 4, 5, 6, 7, and 8.

Depreciation Method Calculation Cost Residual Value Useful Life Depreciation Amount
Straight-Line Cost – Residual Value/Useful Life $20,000 $2,000 5 $3,600
End of Year Cost of Equipment Yearly Depreciation Expense Accumulated Depreciation, End of Year Book Value,

End of Year (Cost Accumulation Depreciation)

Ending Residual Value

 

  1. Example of Accelerated Book Depreciation: SYD (Sum of Years’ Digits) Method

Use the following information to calculate the SYD:

 

  • Fixed asset cost: $20,000
  • Useful life: five years
  • Residual value: $2,000

 

Table for question 2. Fill in the blanks in rows 4, 5, 6, 7, and 8.

Depreciation Method Cost Residual Value   Useful Life
Sum of Year’s Digits $20,000 $2,000 $18,000 5
End of Year (Cost Minus Residual) Fraction for Year  

=

Yearly Depreciation Expenses Accumulation Depreciation End of Year Book Value, End of Year (Cost Accumulation Depreciation)
1
2
3
4
5 Ending Residual Value

 

  1. Example of Accelerated Book Depreciation: DDB (Double Declining Balance) Method

 

  • Fixed asset cost: $72,340
  • Useful life: five years
  • Salvage value: $10,000

 

Table with data for question 3 part 1

Depreciation Method Calculation: Cost to be Depreciated Salvage Value Useful Life Straight-Line Factor Double Declining Factor
DDB Cost Residual Value/Useful Life 72, 340 10,000 5 0.2 0.4

 

Table for question 3 part 2. Fill in the blanks for columns 2, 4, 5 and 6.

Years of Useful Life Initial cost and then the Carry Forward Book Value Double-Declining Factor Annual Depreciation Expense Accumulated Depreciation (Reserve for Depreciation) Net Remaining Underpreciated (Net Book Value)
1 $72,340 0.4 $ $ $
2 0.4 $ $ $
3 0.4 $ $ $
*4 0.2 $ $ $
*5 0.2 $ $ $ Salvage Value

 

*DDB is used for the first three years, then the SL method is used for the last two years. Therefore, the Double-Declining factor is shown for 3 years and the Straight-Line factor is shown for year 4 and 5.

 

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