Computing Depreciation and Accounting lot Lambert Com At that time. Lam timated
ID: 2518809 • Letter: C
Question
Computing Depreciation and Accounting lot Lambert Com At that time. Lam timated that the useful life of the equipment was 6 years and that the residualt time, the end of its useful life. Compute depreciation expense for this asset for 2016, 201z a. straight-line method. b. double-declining-balance method. c. Assume that on January 2, 2018, Lambert revised its estimate of the E8-27. idual value w Company acquired machinery costing $110.000 on January 2,20 ouldbe 6.2017,and 2018ust d its estimate of the useful life to 7 changed its estimate of the residual value to S10,000. What effect would this he 'o 7 yen tion expense in 2018 for each of the above depreciation methods? have on depreExplanation / Answer
Answer a
Depreciation as per straight line method =(Cost - Residual Value) / Estimated Useful life
= ($110,000 - $15,000) / 6 years = $15,833.33
Answer b
Depreciation as per double decline method (DDB)= 2 * SLM rate * Book Value at the beginning of the year
Where , SLM rate = 1 / estimated useful life
Depreciation for 2016 = 2 * 1/6 * $110,000 = $36,667
Depreciation for 2017 = 2 * 1/6 * ($110,000 - $36,667) = $24,444
Depreciation for 2018 = 2 * 1/6 * ($110,000 - $36,667 - $24,444. ) = $1,6296
Answer c
Note: Whenever useful life & residual value changes , the change in depreciation amount will be from prospective effect. That means the changes will be on the remaining depreciable amount & remaining life of the assets
Straight line method
Remaining Life = 7 years - 2 years = 5 years
Depreciable amount = Cost - Accumulated Depreciation [ie dep of 2016 & 2017] = $110,000 - $31,666 = $78,334
New depreciation expense amount for 2018 = ($78,334 - $10,000) / 5years = $13,667
Double decline method
Remaining Life = 7 years - 2 years = 5 years
Depreciable amount = Cost - Accumulated Depreciation [ie dep of 2016 & 2017] = $110,000 - $61,111= $48,889
New depreciation expense amount for 2018 = 2 * 1 /5 * $48,889 = 19,556
Year Depreciation Amount 2016 $15,833 2017 $15,833 2018 $15,833Related Questions
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