Wildhorse Company acquired a plant asset at the beginning of Year 1. The asset h

Question

Wildhorse Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.

Year

Straight-Line

Sum-of-the-
Years'-Digits

Double-Declining-
Balance

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Year

Straight-Line

Sum-of-the-
Years'-Digits

Double-Declining-
Balance

1 $11,340 $18,900 $25,200 2 11,340 15,120 15,120 3 11,340 11,340 9,072 4 11,340 7,560 5,443 5 11,340 3,780 1,865 Total $56,700 $56,700 $56,700

Explanation / Answer

Answer

Now, DDB depreciation under Year 1 is $25200 equals to 40% of Value.

Highest Charge to Income

Depreciation Method

In Year 1

Double declining method

In Year 4

Straight Line Method

Straight Line Method

Sum of Digits Method

Double Declining Balance

Cost

63000

63000

63000

(-) Depreciation till Year 3

34020

45360

49392

Book Value at the end of Year 3

$28980

$17640

$13608

Hence, Straight Line Depreciation will produce highest Book value at $28980 at the end of Year 3.

Highest Charge to Income

Depreciation Method

In Year 1

Double declining method

In Year 4

Straight Line Method

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