Asphalt Inc. lays asphalt in parking lots and roadways. This year they were awar
ID: 2456703 • Letter: A
Question
Asphalt Inc. lays asphalt in parking lots and roadways. This year they were awarded the state roadway contract and decided to purchase new equipment.
Asphalt purchased a new piece of equipment with a cost of $43,600 and a $6,000 salvage value, and placed it into service on April 1, Year 1. The equipment was installed at an additional cost of $3,400. The estimated life of the equipment is 8 years.
Year 1 Year 2
1 Depreciation expense using the straight-line method.
2 Depreciation expense using the double-declining balance method.
Explanation / Answer
Cost of Asset:
Cost of purchase + Installation Charges
=43,600+3,400=$47,000
Depreciation Under Straight Line Method:
Depreciation:=(Cost of Asset- Salvage Value)/8=$5,125
Depreciation % =Depreaciation/Cost of asset x 100=5,125/47,000 x 100 = 10.90 %
Depreciation Under Double decline Method:
is two times of Straight line Method =10.90% X 2 =21.81%(rounded off)
Straight Line Method
Year
Net Book Value beginning of year
Depreciation
Net Book Value end of year
1
47,000
5,125
41,875
2
41,875
5,125
36,750
3
36,750
5,125
31,625
4
31,625
5,125
26,500
5
26,500
5,125
21,375
6
21,375
5,125
16,250
7
16,250
5,125
11,125
8
11,125
5,125
6,000
Salvage Value
41,000
Double Decline Method
Year
Net Book Value beginning of year
Double Decline Balance depreciation computed as 2 x SL (21.81%)
Net Book Value end of year
1
47,000
10,250
36,750
2
36,750
8,015
28,735
3
28,735
6,267
22,469
4
22,469
4,900
17,569
5
17,569
3,831
13,737
6
13,737
2,996
10,741
7
10,741
2,343
8,399
8
8,399
2,399
6,000
Salvage Value
41,000
Last year depreciation to adjusted under double decline to match salvage value.
1)Depreciation expense using the straight-line method
Year 1: $5,125
Year 2: $5,125
2) Depreciation expense using the double-declining balance method
Year 1: $10,250
Year 2: $8,015
Straight Line Method
Year
Net Book Value beginning of year
Depreciation
Net Book Value end of year
1
47,000
5,125
41,875
2
41,875
5,125
36,750
3
36,750
5,125
31,625
4
31,625
5,125
26,500
5
26,500
5,125
21,375
6
21,375
5,125
16,250
7
16,250
5,125
11,125
8
11,125
5,125
6,000
Salvage Value
41,000
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