81% 2:58 STRAIGHT-LINE, DECLINING BALANCE SUM-OF-THE-YEARS-DIGIIS, AND MACRS MET

Question

81% 2:58 STRAIGHT-LINE, DECLINING BALANCE SUM-OF-THE-YEARS-DIGIIS, AND MACRS METHODS A machine is purrhased lanuary 1 ac a cost ofs5y UOU. It is expetlud lforigh years and havu a salvage value o$3,000. REQUIREID 1. rear a suheduleshowing deprciuliuir for each year and the book value at the cnd of cach year using the following methnds la) Saaight-line h) Double-deu:lining-lulillLe(round 11 ao decimal places) lc) Sum-of-the-years'-digits (round to two derimal plares 2. Assuming a seven-year class of properry. compul: MACRS depreciati!expense fur each year of the asset's life 72 Fa.re:

Explanation / Answer

Part 1

Depreciation under SLM

Cost of Machine = $59,000

Salvage Value = $3,000

Period = 8years

Formula for SLM method of depreciation is

Cost of Machine - Salvage Value   So $59,000 - $3,000 = $7,000

No of years or Useful Life 8

Hence the Machinery will be depreciated each year at $7,000.

Part 2

Double Discount method

To calculate depreciation under the double declining method, multiply the asset book value at the beginning of the fiscal year by a multiple of the straight-line rate of depreciation. The double declining balance formula is:

Double-declining balance (ceases when the book value = the estimated salvage value)

2 × Straight-line depreciation rate × Book value at the beginning of the year

Straight Line rate of Depreciation = Depreciation as per SLM which is 7000    = 12.5%

Cost of machine - Salvage value 59000-3000

Part 3

Sum of the year Digit method

Formula = n(n+1) = 8(8+1) = 36

2 2

Annual Depreciation is calculated by mulplying Net cost of machine which is ( Cost of machine- Salvage value) $59000-$3000=$56000 with the allocated percentage.

Part B

MACRS method of Depreciation

MACRS stands for modified accelerated cost recovery system

Formulas

Depreciation in 1st Year =Cost × 1 × A × Depreciation Convention

useful life

Where A is assumed to be 100%

So depreciation for first year will be by applying the above formula = 59000-3000*1/8*100%*1 =7000

2nd year using formula (56000-7000)*1/8*100% = 6125

3rd year using formua (56000-7000-6125)*1/8*100%= 5359.37

Same will be used till 7 years you can also use Table and get the rates . This will be direct method of solving the above just multiply the rate with cost of machinery and you will get the answer

Hope it helps.

Years Beigning Book Value Depreciation Rate Depreciation expense Accumulated Depreciation Book Value at end of period 1 59000.00 12.5% 14750.00 14750.00 44250.00 2 44250.00 12.5% 11062.50 25812.50 33187.50 3 33187.50 12.5% 8296.88 34109.38 24890.63 4 24890.63 12.5% 6222.66 40332.03 18667.97 5 18667.97 12.5% 4666.99 44999.02 14000.98 6 14000.98 12.5% 3500.24 48499.27 10500.73 7 10500.73 12.5% 2625.18 51124.45 7875.55 8 7875.55 12.5% 4875.55 56000 3000

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