Accounting Fundamentals For Health Care Management Chapter 10, Test Your Knowled
ID: 2417522 • Letter: A
Question
Accounting Fundamentals For Health Care Management
Chapter 10, Test Your Knowledge
1. Which GAAP requires the use of depreciation for assets that have useful lives beyond 1 year?
2. Explain why the (the answer to ques 1) GAAP__________ requires the use of depreciation fo assets that have useful lives beyond 1 Year.
3. Explain the four steps in the depreciation process.
4. The York City Hospital has just acquired new equipment. The equipment cost $4,250,000, and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The equipment is expected to have 10- year useful life and a savlvage value of 10% (i.e, $425,000). Calculate the first 5 years of depreciation, using the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
4. A new medical practice purchases computer equipment that cost $15,000, to be used for medical billing. In addition, the practice purchases billing software that cost $5,000. Both the computer equipment and the software are expected to have 3-Year useful lives and no salvage vaule. Calculate the 3 years of depreciation, using the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
5. The New Hospital has raised money for a new oncology wing. The hospital has also aquired medical diagnostic equipment that cost $500,000. In addition, the hospital paid $15,000 to ship the equipment from the manufacturer and $40,000 to install the equipment. The equipment is expected to have a 6-year useful life and a $30,000 salvage value. Calculate the 6 years of depreciation using the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
6. For-profit organizations can use different methods for reporting depreciation to owners and to the government (for tax purposes). What is the practical effect of theis allowance?
Explanation / Answer
Solution:
(A). GAAP Depreciation Methods:
1. Stright Line Depreciation Method
2. Double Declining Balance Method
3. Sum-of Years Depreciation Method
(C). Process of Depreciation:
Find/Asses the Asset Value
Usefull Life of Machine
Minus the Solvage Value from Asset Value
Divide the Asset Value / Use life of Machine
(D). Depreciation Caluculation:
Stright Line Depreciation:
= 42,50,000 + 1,35,000 - 4,25,000 / 10 Years
= 39,60,000 / 10 Years
= 3,96,000
Asset Value 42,50,000
Less: 1 Year Depre 3,96,000
Balance = 38,54,000
Less: 2nd Year Depreci 3,96,000
Balance = 34,58,000
Less: 3rd Year Depreci 3,96,000
Balance = 30,62,000
Less: 4th Year Depreci 3,96,000
Balance = 26,66,000
Less: 5 th Year Depreci 3,96,000
Balance = 18,70,000
(2). Double Declining Balance Method:
(3).
Sum_of the Years-Digits Method:
Depreciation =
Sum-of the Years Value:
Sum-of the Years Value = 10 ( 10+1)2
= 55
Depreciable Base = $4,50,000 - 4,25,000 = 38,25,000
Depreciation = 38,25,000 * 5 Yeasr / 55
= 3,47,728
(E).
Stright Line Depreciation:
=15,000 + 5,000 - 0 / 3 Years
= 20,000 / 3 Years
= 6,667
(2). Double Declining Balance Method:
(3).
Sum_of the Years-Digits Method:
Depreciation =
Sum-of the Years Value:
Sum-of the Years Value = 3( 3+1)2
= 6
Depreciable Base = $15,000 - 0 = 15,000
Depreciation = 15,000 * 3 Yeasr / 6
= 7,500
(F).
Stright Line Depreciation:
=5,00,000 + 55,000 - 30,000 / 6 Years
= 5,20,000 / 6 Years
= 86,667
(2). Double Decling Balance Method:
(3). Sum-of the Years Digits Depreciation Method:
Sum_of the Years-Digits Method:
Depreciation =
Sum-of the Years Value:
Sum-of the Years Value = 6( 6+1)2
= 22
Depreciable Base = $5,55,000 - 30,000 = 5,20,000
Depreciation = 5,20,000 * 6 Yeasr / 22
= 1,47,818.18
Depreciation = Asset Value - Solvage Value / No. of Years