Ins 15-What interest rates should be used in determining the amount of interest
ID: 2797322 • Letter: I
Question
Ins 15-What interest rates should be used in determining the amount of interest to be capitalized? How should the amount of interest to be capitalized be determined 16-Calculate depreciation A machine which cost $500,000 is acquired on October 1, 2017. Its estimated salvage value is $50,000 and its expected life is eight years. Instructions (1) Calculate depreciation expense for 2017 and 2018 by the following method, showing the figures used. (a) Double-declining balance 17-Calculate depreciation. A machine cost $900,000 on April 1, 2017. Its estimated salvage value is $90,000 and its expected life is eight years. Instructions (1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used. (a) Straight-line for 2017 (b) Double-declining balance for 2018 (c) Sum-of-the-years'-digits for 2018 (2) Which method would result in the smallest income amount for 2018Explanation / Answer
15.
The amount of interest to be capitalized is the avoidable interest, or the actual interest incurred, whichever is lower
The avoidable interest is determined by multiplying (an) interest rate(s) bythe weighted-average amount of accumulated expenditures on qualifyingassets.
16.
Deprecition expense
year 2017
value of machinary:$500000
salvage value:$50000
Life:8years
Depreciation:(500000-50000)/8 = 56250
Rate of depreciation under SLM:56250/450000=12.5%
Rate Under double declining balance method=12.5%*2=25%
Under double declining balance method:450000*25%=112500
Year2018
WDV=450000-112500=337500
Depreciation=337500*25%
=84375
17.
a)
cost=900000
Salvage value:90000
life:8years
Depreciation under SLM FOR 2017:(900000-90000)/8=101250
b)
Rate of depreciation under slm:101250/810000=12.5%
Rate Under double declining balance method=12.5%*2=25%
WDV=810000-101250=708750
Under double declining balance method:708750*25%=177188
c)
Sum of digts=1+2+3+4+5+6+7+8=36
Rate of deprecition for year2=7/36=19.44%
WDV=810000-101250=708750
Under sum of digits method:708750*19.44%=137781
2)double declining balance method results smallest income