a. Using the SL method the depreciation amount in the second year is Using the S

Question

a. Using the SL method the depreciation amount in the second year is

Using the SL method the BV at the end of the third year of life is

b. Using the 200% DB method the depreciation amount in the second year is

Using the 200?% DB method the BV at the end of the third year of life is

c. Using the GDS the depreciation amount in the second year is

Using the GDS the BV at the end of the third year of life is

d. Using the ADS the depreciation amount in the second year is

Using the ADS the BV at the end of the third year of life is

An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $65,000, and it has an estimated MV of $12,000 at the end of an estimated useful life of 16 years. Compute the depreciation amount in the second year and the BV at the end of the third year of life by each of these methods: a. The SL method. b. The 200% DB method with switchover to SL. c. The GDS d. The ADS

Explanation / Answer

Part A

Depreciation under SLM would be 65000-12000/6 = $ 3312.50 for the second year. Book Value would be 65000 - 3312.50 - 3312.50 - 3312.50 = $ 55062.50

Part B

Depreciation under 200% DB would be 6221 for third year, 7109 for the second year and 8125 for first year. Book Value would be 65000 - 7109 - 8125 - 6221 = $ 43545

Part C

Valur at the endo f third year = 51071.43-9285.71=$ 41785.72

Part D

value at the end of third year = 58035.71 - 4642.86 = $ 53392.85

Notes:

Year Remaining recovery period carried value Depreciation Acc. Dep Method 2018 7 65,000.00 4,642.86 4,642.86 GDS S/L 2019 6.5 60,357.14 9,285.71 13,928.57 GDS S/L 2020 5.5 51,071.43 9,285.71 23,214.28 GDS S/L

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