In early January 2013, NewTech purchases computer equipment for $166,000 to use
ID: 2598247 • Letter: I
Question
In early January 2013, NewTech purchases computer equipment for $166,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $31,000. Prepare a table showing depreciation and book value for each of the four years assuming double-declining- balance depreciation. Depreciation for the Period End of Period Beginning of Period Book Value Depreciation Rate Annua Accumulated Depreciation Depreciation Year Book Value 2013 $ 2014 2015 2016 Tota 50% 50% 50% 50%; 83,000 $ 41,500 10,500 83,000 $ 124,500 135,000 135,000 $ 166,000 83,000 41,500 31,000 83,000 41,500 31,000 31,000 $135,000Explanation / Answer
Solution : Straight-line Depreciation Rate = 1 ÷ 4 = 0.25 = 25%
Declining Balance Rate = 2 × 20% = 50%
Depreciation = 50% × 166,000 = 83,000
Book Value at the end of year 2014 = 41500
Deperciation = 41500*50% = 20750
Closing book value at the end of year 2015 = 41500-20750 = 20750
That is less than the salvage value, so depreciation would only be allowed up to the point where book value = salvage value.
Dep allowed = 41500-31000 = 10500
Year Beginning Book Value (i) Deperciation rate (ii) Annual Depreciation (iii)=(i*ii) Closing Book Value (iv)=(i-iii) 2013 166000 50% 83000 83000 2014 83000 50% 41500 41500 2015 41500 50% 10500 31000 2016 31000 0 31000 Total 135000