Gear Inc. purchased equipment costing $420,000 with an estimated residual value
ID: 2466852 • Letter: G
Question
Gear Inc. purchased equipment costing $420,000 with an estimated residual value of $20,000 and a useful life of eight years on May 1, 2009. Gear Inc. is a calendar-fiscal year and computes depreciation to the nearest month (the firm does not use a convention approach to fractional depreciation).
Compute depreciation for the equipment for fiscal years 2009 and 2010 under the sum-of-years' digits (SYD) method and the double declining balance (DDB) method. Place your amounts rounded to the nearest dollar in the appropriate columns.
2009 2010 SYD DDBExplanation / Answer
Answer 2009 2010 SYD 59259 81481 DDB 70014 87497 Working Sum of Years Digit Mtehod (SYD) Sum of year digits = n(n+1)/2 =8(8+1)/2 Sum of year digits = 36 Year Depreiciable Value Depreciation % Depreciation Year end Value 2009 420000-20000 = 400000 (8/36*8/12) = 14.81% 59259 360741 2010 420000-20000 = 400000 (4/12*8/36+8/12*7/36) = 20.37% 81481 279259 Double Decline Balance Method DDB = 2* SLR* Book Value at beginning It ceases when Book Value = estimated salvage value Year Depreiciable Value Depreciation % Depreciation Year end Value 2009 420000 (2*1/8*8/12) =16.67% 70014 349986 2010 349986 (2*1/8) = 25% 87497 262490
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