Homework Answers
a)
| Year | Depreciable Cost | * | Rate (SL) | = | Depreciation Expense | Accumulated Depreciation | Book Value |
| 1 | $570000 | * | 25% | = | $142500 | $142500 | (640000-142500)= 497500 |
| 2 | $570000 | * | 25% | = | 142500 | (142500+142500)= 285000 | (640000-285000)= 355000 |
| 3 | $570000 | * | 25% | = | 142500 | (285000+142500)= 427500 | (640000-427500)= 212500 |
| 4 | $570000 | * | 25% | = | 142500 | (427500+142500)= 570000 | (640000-570000)= 70000 |
| $570000 |
Depreciable Cost= Original cost-Residual value
= $640000-70000= $570000
Straight line depreciation rate= 1*100/4= 25%
Book value= Original cost-Accumulated depreciation
b)
| Year | Miles Driven | * | Depreciation cost per unit | = | Annual Depreciation Expense | Accumulated Depreciation | Book Value |
| 1 | 14400 | * | $14.25 | = | $205200 | $205200 | (640000-205200)= 434800 |
| 2 | 12800 | * | $14.25 | = | 182400 | (205200+182400)= 387600 | (640000-387600)= 252400 |
| 3 | 8800 | * | $14.25 | = | 125400 | (387600+125400)= 513000 | (640000-513000)= 127000 |
| 4 | 4000 | * | $14.25 | = | 57000 | (513000+57000)= 570000 | (640000-570000)= 70000 |
| $570000 |
Depreciation cost per unit= (Original cost-Residual value)/Expected operating hours
= ($640000-70000)/40000=$14.25 per unit
Book value= Original cost-Accumulated depreciation
c)
| Year | Beginning Book Value | * | Declining Balance Rate | = | Annual Depreciation Expense | Accumulated Depreciation | Book Value |
| 1 | $640000 | * | 50% | = | $320000 | $320000 | (640000-320000)= 320000 |
| 2 | 320000 | * | 50% | = | 160000 | (320000+160000)= 480000 | (640000-480000)= 160000 |
| 3 | 160000 | * | 50% | = | 80000 | (480000+80000)= 560000 | (640000-560000)= 80000 |
| 4 | 80000 | * | 50% | = | (80000-70000)= 10000 | (560000+10000)= 570000 | $70000 |
| $570000 |
Declining Balance Rate= 100/4*2= 50%
d)
| Depreciation Expense | |||
| Year | Straight Line Method | Units-of-Activity Method | Double-Declining-Balance Method |
| 1. | $142500 | $205200 | $320000 |
| 2. | 142500 | 182400 | 160000 |
| 3. | 142500 | 125400 | 80000 |
| 4. | 142500 | 57000 | 10000 |
| Total | $570000 | $570000 | $570000 |
2) Double-Declining-Balance Method yields the highest depreciation expense for Year 1.
3) All the three methods have the same depreciation over the four year life of the machinery i.e., $570000
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