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