Hello I need acounting help with depreciation expense problem Answers are entere

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Hello I need acounting help with depreciation expense problem

Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. A red asterisk (*) will appear either beside or below an incorrect answer. Straight-line method: Double-declining-balance method: Razor Sharp Company purchased tool sharpening equipment on July 1, 28, for $48,6. The equipment was expected to have a useful life of three years, and a residual value of $3,. Instructions Determine the amount of depreciation expense for the years ended December 31, 28, 29, 21, and 211, by the straight-line method and the double-declining-balance method.

Explanation / Answer

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a. Straight-line method.

The straight-line method is the simplest. All you need to do, is divide the depreciable value by the useful life and that will give you your annual depreciation. It's called straight-line because you depreciate the asset by the same amount every year (if you graphed it, it would be a straight line :D ).

For this question, we first need the depreciable value of the asset. To find this, take the historical cost minus the residual value. 48,600 - 3,000 = $45,600

Now we take this number and divide by the useful life. 45,600 / 3 = $15,200. This the the depreciation for each year. HOWEVER, note that in this question, the asset was purchased on July 1st, which is the middle of the year! Therefore, in the year 2008, you will only be depreciating half a years worth of depreciation (15,200 / 2 = 7600). In 2009, you will depreciate the full amount of 15,200. In 2010, you will also deprecate the full amount of 15,200. In 2011, you will only depreciate 7600 because the asset reaches the end of its useful life on July 1, 2011 (3 years after purchase).

b. Units-of-production method

This is where we will use the "hours" provided in the question. Each year the asset is used for a number of hours so what we need to do here is find the depreciation per hour. We have already determined that this asset has a depreciable value of $45,600 so all we need to do is divide the depreciable value by the total units-of-production (in this case "hours").

45,600/7500 = $6.08 per hour.

Now just multiply this by the number of hours in each year

2008: 1800 * 6.08 = 10,944

2009: 2600 * 6.08 = 15,808

2010: you can do the rest....

c. Double declining balance.

For this method we need to take the net book value and multiply it by the depreciation rate. To get the depreciation rate, simple take 200% (because this is double declining) and divide it by the useful life of the asset. 200% / 3 = 66.67%

The book value (cost) at the beginning of the year is 48,600. Normally, you would multiply this by the depreciation rate and get your depreciation for the year. HOWEVER, the first and last years are only half years so we are going to divide by 2.

48,600 * 66.666667% = $32400 / 2 = $16,200

This is your depreciation for 2008. Now take this 16,200 from 2008 and subtract it from the book value 48,600 - 16,200 = 32,400. This is the number you will use as the beginning value for 2009.

32,400 * 66.666667% = 21,600. This is your depreciation for 2009. Subtract this from the current net book value.

32,400 - 21,600 = 10,800. This is your beginning net book value for 2010.

10,800 * 66.6666667% = 7200. This is your depreciation for 2010. Subtract this from current net book value.

10,800 - 7,200 = 3600. This is your beginning net book value for 2011.

3600 * 66.66666666667% = 2400. STOP HERE. Because you cannot depreciate past $3000, you will not be able to depreciate the full $2400. You can only depreciate $600 in 2011.

2008: 16,200

2009: 21,600

2010: 7,200

2011: 600

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