Cisco Systems is purchasing a new bar code scanning device foCost Item its servi
ID: 2788086 • Letter: C
Question
Cisco Systems is purchasing a new bar code scanning device foCost Item its service center in San Francisco. The table that on the right lists the relevant cost items for this purchase. The operating expenses for the new system are $10,000 per year, and the useful life of the system is expected to be four years. The SV for depreciation purposes is equal to 22% of the hardware cost. Cost $160,000 Hardware Training Installation $17,000 $16,000 a. What is the BV of the device at the end of year two if the SL depreciation method is used? b. Suppose that after depreciating the device for one year with the SL method, the firm decides to switch to the double declining balance depreciation method for the remainder of the device's life (the remaining three years). What is the device's BV at the end of three years?Explanation / Answer
Solution:
Original Cost: hardware+Training+Installation Cost=160000+17000+16000= $193000
Salvage Value at the end of 4th Year = .22*160000 = $ 35200
Life = 4 years
a. Calculation Of book Value After year 2 at SL depreciation =
Depreciation with SL method per year = (193000-35200/4) = $39450
Depreciation for 2 years = 39450*2 = $78900
So Value After 2 years = 193000-78900= $114100
b.Book Value after three year with 1st year SL and remaining with double declining depreciation.
From Part a Depreciation per annum with SL method is $ 39450 right
So after one year with SL depreciation book value will be 193000-39450 = $ 153550
Now with Double declining method for remaing 3 years :
({(Book value - Salvage value)/ No of year}/Book Value) * 2 *100 i.e double the percentage of Straight line method
{(153550-35200/3)/153550}*100*2 = 51.38 %
So for the
First year end value is 153550(1-.5138)=$74656
Second Year End is 74656(1-.5138)=$36297.75
Third year it will be 36297.75(1-.5138)=$17647.96