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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Partial-year depreciation

Equipment acquired at a cost of $105,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years. It was placed into service on May 1 of the current fiscal year, which ends on December 31. Determine the depreciation for the current fiscal year and for the following fiscal year by (a) the straight-line method and (b) the double-declining-balance method.

(a)

To determine

Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:

Depreciation = (Cost of the assetResidual value)Estimated useful life of the asset

To determine: the amount of depreciation by the straight-line method for the current fiscal year and for the following fiscal year.

Explanation

Determinethe amount of depreciation for the current fiscal year.

Cost of the equipment= $105,000

Estimated residual value=$12,000

Estimated Useful Life =10 years

Number of months used in the current fiscal year =8 months (May 1-December 31)

Partial-yearDepreciationforthecurrentyear] = [(Cost of the assetResidual value)Estimated useful life of the asset×Numberofmonthsused12]=$105,000$12,00010years×8months12=$93,00010×812=$6,200

Determinethe amount of depreciation for the following fiscal year

(b)

To determine

Double-declining-balance method: It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less accumulated depreciation) of the long-term asset is decreased by a fixed rate. It is double the rate of the straight-line depreciation. Use the following formula to determine the annual depreciation:

Depreciation = Purchase price × (2Useful life)

To determine: the amount of depreciation by the double-declining-balance method for the current fiscal year and for the following fiscal year.

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