Part A) Equipment with and estimated life of 10 years and no expected residual v
ID: 2585161 • Letter: P
Question
Part A) Equipment with and estimated life of 10 years and no expected residual value was purcahsed on account for $60,000 on March 6, 2017. Assuming a year-end of December 31, calulate depreciation for 2017 and 2018 using the straight-line method:
A. To the nearest whole month
B. Using the half-year convention
Part B) Refer to the information in Part A. Assume that the equipment is depreciated using the double-declining balance method. Calculate depreciation for 2017 and 2018:
A. To the nearest whole month
B. Using the half-year convention
Explanation / Answer
Part A : Depreciation using Straight line method = (Cost - residual value)/useful life
Depreciation for a year = ($60,000 - 0)/10 yrs = $6,000
A.) To the nearest whole month
In case depreciation is calculated to the nearest whole month, then Depreciation for 2017 will be calculated for ten months (i.e. from March to December) and depreciation for 2018 will be calculated for all twelve months.
Depreciation for 2017 = $6,000*10/12 = $5,000
Depreciation for 2018 = $6,000*12/12 = $6,000
B.) Using the half year convention
Under the half year convention it is assumed that property acquired during the year as being acquired in the middle of the year. Thus for 2017 the depreciation will be calculated for six months and 2018 it will be calculated for full year
Depreciation for 2017 = $6,000*6/12 = $3,000
Depreciation for 2018 = $6,000
Part B : Depreciation using double declining balance method
Depreciation rate for double declining balance method = (1/useful life)*2*100 = (1/10)*2*100 = 20%
A.) To the nearest whole month
Depreciation for 2017 = $60,000*20%*10/12 = $10,000
Depreciation for 2018 = ($60,000 - $10,000)*20%*12/12 = $10,000
B.) Using the half year convention.
Depreciation for 2017 = $60,000*20%*6/12 = $6,000
Depreciation for 2018 = ($60,000 - $6,000)*20% = $10,800