Annual Depreciation and Appropriate Depreciation Methods
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A high-speed multiple-bit drill press costing $300,000 has an estimated salvage value of $30,000 and a life of ten years. What is the annual depreciation FOR THE SECOND YEAR OF USE under the following depreciation methods?
1. Double-declining-balance method:
2. Units of production (activity) method (lifetime output is estimated at 110,000 units; the press produced 12,000 units in year one and 18,000 in year two):
3. Sum-of-the-years'-digits method:
4. Straight-line depreciation method:
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Solution Summary
The solution explains the depreciation calculation using double-declining-balance method, units of production (activity) method, Sum-of-the-years'-digits method and Straight-line depreciation method
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1. Double-declining-balance method:
Under this method the depreciation is calculated as opening book value X rate
The life is 10 years and so the rate is 2/10 = 20% for double declining
The cost is 300,000
Depreciation for year 1 is 300,000X20% = 60,000
The book value at the start of year 2 is 300,000-60,000=240,000
Depreciation in year 2 is 240,000X20%=$48,000
In this method the ...
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