### Exercise 1

Entity B has the following equipment:

 Equipment 1 Equipment 2 Purchase date January 1, 20x1 September 1, 20x1 Cost \$72,000 \$84,000 Salvage value \$7,200 \$8,400 Amount to be depreciated \$64,800 \$75,600 Years of useful life 5 5

(1) If Entity B used the straight-line depreciation method, what is the amount of depreciation for each year?

(2) If Entity B used the double-declining balance depreciation method, what is the amount of depreciation for each year?

### (1) Straight-line method

 Cost Salvage value Years of useful life Annual depreciation Number of months for depreciation Depreciation expense Accumulated depreciation Equip 1 20x1 \$72,000 \$7,200 5 \$12,960 12 \$12,960 \$12,960 20x2 \$72,000 \$7,200 5 \$12,960 12 \$12,960 \$25,920 20x3 \$72,000 \$7,200 5 \$12,960 12 \$12,960 \$38,880 20x4 \$72,000 \$7,200 5 \$12,960 12 \$12,960 \$51,840 20x5 \$72,000 \$7,200 5 \$12,960 12 \$12,960 \$64,800 Equip 2 20x1 \$84,000 \$8,400 5 \$15,120 4 \$5,040(*2) \$5,040 20x2 \$84,000 \$8,400 5 \$15,120 12 \$15,120 \$20,160 20x3 \$84,000 \$8,400 5 \$15,120 12 \$15,120 \$35,280 20x4 \$84,000 \$8,400 5 \$15,120 12 \$15,120 \$50,400 20x5 \$84,000 \$8,400 5 \$15,120 12 \$15,120 \$65,520 20x6 \$84,000 \$8,400 5 \$15,120 8 \$10,080 \$75,600

[Note]

(*1) (\$72,000 - \$7,200) x 1/5 x 12/12 = \$12,960

(*2) (\$84,000 - \$8,400) x 1/5 x 4/12 = \$5,040

### (2) Double-declining balance method

 Cost Beginning book value Depreciation rate Number of months for depreciation Depreciation expense Accumulated depreciation Ending book value Equip 1 20x1 \$72,000 \$72,000 40%(*1) 12 \$28,800 (*2) \$28,800 \$43,200 20x2 \$72,000 \$43,200 40% 12 \$17,280 \$46,080 \$25,920 20x3 \$72,000 \$25,920 40% 12 \$10,368 \$56,448 \$15,552 20x4 \$72,000 \$15,552 40% 12 \$6,221 \$62,669 \$9,331 20x5 \$72,000 \$9,331 40% 12 \$2,131 \$64,800 \$7,200 Equip 2 20x1 \$84,000 \$84,000 40% 4 \$11,200 (*3) \$11,200 \$72,800 20x2 \$84,000 \$72,800 40% 12 \$29,120 \$40,320 \$43,680 20x3 \$84,000 \$43,680 40% 12 \$17,472 \$57,792 \$26,208 20x4 \$84,000 \$26,208 40% 12 \$10,483 \$68,275 \$15,725 20x5 \$84,000 \$15,725 40% 12 \$6,290 \$74,565 \$9,435 20x5 \$84,000 \$9,435 40% 8 \$1,035 \$75,600 \$8,400

[Note]

(*1) Useful life of equipment = 5 years

Annual depreciation rate under straight-line depreciation method = 1/5 = 20%

Annual depreciation rate under double-declining balance method = 20% x 2 = 40%

(*2) \$72,000 x 40% x 12/12 = \$28,800

(*3) \$84,000 x 40% x 4/12 = \$11,200

Ending book value = Cost - Accumulated