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Sandblasting equipment acquired at a cost of $40,000 has an estimated residual value of $8,000 and an estimated useful life of eight years. It was placed into service on April 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.
Financial Accounting
Solutions
Financial Accounting
Sandblasting equipment acquired at a cost of $40,000 has an estimated residual value of $8,000 and an estimated useful life of eight years. It was placed into service on April 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)
Determine the amount of depreciation by the straight-line method for the current fiscal year and for the following fiscal year.
Explanation of Solution
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:
Determine the amount of depreciation for the current fiscal year.
Cost of the equipment= $40,000
Estimated residual value=$8,000
Estimated Useful Life =8 years
Number of months used in the current fiscal year = 9 months (April 1-December 31)
Determine the amount of depreciation for the following fiscal year
(b)
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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