Question

For the year 20X1, the Landmark Restaurant had sales of $800,000 and expenses of $700,000 excluding depreciation. The building is being leased and the only depreciation asset is equipment in the amount of $100,000. The equipment has a life of ten years with zero salvage value.

Require:

Calculate the earnings before tax for 20X1 if:

1. The equipment is depreciated under straight-line depreciation

2. The equipment is depreciated under double-declining balance depreciation

Answer 1

1	Sales	=	$          8,00,000
Less:	Expenses	=	$        -7,00,000
Less:	Depreciation expense	=	$            -10,000
	Earnings before tax	=	$             90,000
2	Sales	=	$          8,00,000
Less:	Expenses	=	$        -7,00,000
Less:	Depreciation expense	=	$            -20,000
	Earnings before tax	=	$             80,000
	Workings:
1	Straight Line method:-
	Depreciation expense	=	(Cost - Residual value) / useful Value
		=	($100000 - $0) / 10 years
		=	$             10,000	per year
2	Double - declining balance method:-
	Double declining rate	=	(100%/ 10 years) X 2
		=	20%
	Depreciation expense	=	$100000 X 20%
		=	$             20,000