Q3. Modified problem 8.20 from page 468 of the textbook, which now reads: \"Cons
ID: 2555421 • Letter: Q
Question
Q3. Modified problem 8.20 from page 468 of the textbook, which now reads: "Consider the following data on an asset: Cost of asset, P Useful life, N Salvage value, S $118,000 5 years $20,000 Compute the annual depreciation allowances and the resulting book values, using (a) The Straight-Line (SL) depreciation method, (b) Sum-Of-the-Years' Digits (SOYD) method, (c) Declining Balance (DB) method (with switching to SL if required), and (d) If the salvage value has changed to $8,000, Double Declining Balance (DDB) method (with switching to SL if required)."Explanation / Answer
1.Depreciation Under Stright Line Method
Depreciation = ( Cost of the Asset – Salvage Value )/Usefull Life
= ( $ 118000 - $ 20000 ) /5 Years
= $ 19600 per year
Year
Opening Value
Depreciation
Book Value
1
$ 118000
$ 19,600
98400
2
98400
$ 19,600
78800
3
78800
$ 19,600
59200
4
59200
$ 19,600
39600
5
39600
$ 19,600
20000
2.Depreciation Under Sum of years digit method
Depreciation Year 1= $ 98000 x 5/15 = $ 32667
Depreciation Year 2= $ 98000 x 4/15 = $ 26133
Depreciation Year 3= $ 98000 x 3/15 = $ 19600
Depreciation Year 4= $ 98000 x 2/15 = $ 13067
Depreciation Year 5= $ 98000 x 1/15 = $ 6533
Year
Opening Value
Depreciation
Book Value
1
$ 118000
$ 32667
85333
2
85333
26133
59200
3
59200
19600
39600
4
39600
13067
26533
5
26533
6533
20000
3.Depreciation Under Double Declining Balance
Year
Book Value Begining
Depreciation = 2 x SL Depreciation Rate x Book Value Begining
Book Value
1
118000
47200
70800
2
70800
28320
42480
3
42480
16992
25488
4
25488
5488
20000
***Stright Line Depreciation Rate = 1/5 = 20%
4.Depreciation Under Double Declining Balance if salvage value changed to $8,000
Year
Book Value Begining
Depreciation = 2 x SL Depreciation Rate x Book Value Begining
Book Value
1
118000
47200
70800
2
70800
28320
42480
3
42480
16992
25488
4
25488
10195
15293
5
15293
6117
9176
***Stright Line Depreciation Rate = 1/5 = 20%
Year
Opening Value
Depreciation
Book Value
1
$ 118000
$ 19,600
98400
2
98400
$ 19,600
78800
3
78800
$ 19,600
59200
4
59200
$ 19,600
39600
5
39600
$ 19,600
20000
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