New tire re-treading equipment, acquired at a cost of $120,000 on 1/2/06, has an
ID: 2575823 • Letter: N
Question
New tire re-treading equipment, acquired at a cost of $120,000 on 1/2/06, has an estimated useful life of 5 years and an estimated residual value of $10,000. The manager requested information regarding the alternative methods on the amount of depreciation expense Instructions: Determine the amount of depreciation expense, accumulated depreciat book value for the years ended December 31 2006,2007 2008.2009,2010 0y ion, a nd . the straight line method the double declining balance method units of production Assume that it is estimated that the equipment will be used for 10,000 operating hours. (2,500 (06), 3,000 (07), 2.750 (08). 1,500 (09), 250 (2010) Present and submit all of your work in the Problem 3 Part 1 Tab)
Explanation / Answer
1 the straight line method cost of the asset 120000 salvage value 10000 net value 120000-10000 net value 110000 number of years 5 depreciation 110000 / 5 depreciation 22000 20166.66667 1 2 3 4 year depreciation for the year accumulated depreciation net book value at the end of the year ( starting net book value - depreciation for the year ) 2006 20167 20167 89833 2007 22000 42167 67833 2008 22000 64167 45833 2009 22000 86167 23833 2010 22000 108167 1833 note the equipment has been used for 11 months in the year 2006 , hence depreciation has been provided for 11 months in that year , depreciation for 2006 , ( 22000 * 11 / 12 ) , 20166.67 2 double declaiming method depreciation normal rate depreciation for 1 year / net book value of the asset 22000 / 110000 20% double declaiming method rate normal depreciation rate * 2 20 * 2 40% depreciation expenses 1 2 3 4 5 year opening book value depreciation rate depreciation for the year ( 2 * 3 ) closing book value ( 2 - 4 ) 2006 110000 40% 40333 69667 2007 69667 40% 27867 41800 2008 41800 40% 16720 25080 2009 25080 40% 10032 15048 2010 15048 40% 6019 9029 accumulated depreciation year depreciation for the year accumulated depreciation closing book value 2006 40333 40333 69667 2007 27867 68200 41800 2008 16720 84920 25080 2009 10032 94952 15048 2010 6019 100971 9029 note depreciation for the year 2006 has been calculated for 11 months ( 44000 * 11 / 12 ) 3 units of production method total number of units production 10000 depreciation amount 1 2 3 4 5 year opening book value depreciation rate depreciation for the year ( 2 * 3 ) closing book value ( 2 - 4 ) 2006 110000 110000*2500/10000 27500 82500 2007 82500 110000*3000/10000 33000 49500 2008 49500 110000*2750/10000 30250 19250 2009 19250 110000*1500/10000 16500 2750 2010 2750 110000*250/10000 2750 0 accumulated depreciation year depreciation for the year accumulated depreciation closing book value 2006 27500 27500 82500 2007 33000 60500 49500 2008 30250 90750 19250 2009 16500 107250 2750 2010 2750 110000 0