Consider five depreciation schedules: Year [A] [C] [D] 1 $45.00 $29.00 $58.00 $2
ID: 1107271 • Letter: C
Question
Consider five depreciation schedules:
Year
[A]
[C]
[D]
1
$45.00
$29.00
$58.00
$29.00
2
36.00
46.40
34.80
29.00
3
27.00
27.84
20.88
29.00
4
18.00
16.70
12.53
29.00
5
9.00
16.70
7.52
29.00
6
8.36
All are based on the same initial cost ($145), useful life, and salvage value. Identify each schedule(column) as one of the following:
Straight-Line depreciation
Sum-of-Years’-Digits depreciation
Double Declining Balance depreciation
Unit-of-Production depreciation
Modified Accelerated Cost Recovery System
A
B
C
D
Year
[A]
[B][C]
[D]
1
$45.00
$29.00
$58.00
$29.00
2
36.00
46.40
34.80
29.00
3
27.00
27.84
20.88
29.00
4
18.00
16.70
12.53
29.00
5
9.00
16.70
7.52
29.00
6
8.36
Explanation / Answer
Initial Cost = $145
In straight line depreciation, depreciation will be same for all years
Time = 5 years
So depreciation = 145/5 = $29 for all years
Therefore, 'D' is a straight line depreciation method
In MACRS for 5 years,
Depreciation in year 1 = 20%
Depreciation in year 2 = 32%
Depreciation in year 3 = 19.2%
Depreciation in year 4 = 11.52%
Depreciation in year 5 = 11.52%
So Depreciation in year 1 = 0.2*145 = 29
Depreciation in year 2 = 0.32*145 = 46.4
Therefore, 'B' is a Modified Accelerated Cost Recovery System of depreciation
In double declining method
Depreciation = 2*straight line depreciation percent*book value at beginning of year
Straight line depreciation % = 1/5 = 20%
Depreciation in year 1 = 2*0.2*145 = 58
Book value after year 1 = 145-58 = 87
Depreciation in year 2 = 2*0.2*87 = 34.8
Therefore, 'C' is a Double Declining Balance deprection method
In option A, total depreciation = 45+36+27+18+9 = 135
In sum of years depreciation method, depreciation = (remaining life at beginning of year /((n(n+1))/2)) *(depreciable value)
where n is number of years
n(n+1)/ 2 = 15
depreciable value = 135
So depreciation in year 1 = (5/15)*135 = 45
depreciation in year 2 = (4/15)*135 = 36
Therefore, 'A' is a sum of years digits deprection method
We have not checked for unit of production method as no information is given about production so no method can be using this depreciation method
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