PROBLEM IV A boiler acquired on January 2 at a cost of 31500

PROBLEM IV A boiler acquired on January 2, at a cost of $315,000 has an estimated useful life of 20 years Assuming that it will have no residual value, determine the depreciation for each of the first two years: (a) By the straight line method (b) By the declining balance method, using twice the straight- line rate

Solution

Answer

Straight Line Method working

A

Cost

$        3,15,000.00

B

Residual Value

$                           -  

C=A - B

Depreciable base

$        3,15,000.00

D

Life [in years]

20

E=C/D

Annual SLM depreciation

$            15,750.00

Year

Book Value

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$    3,15,000.00

$            15,750.00

$      2,99,250.00

$       15,750.00

2

$    2,99,250.00

$            15,750.00

$      2,83,500.00

$       31,500.00

Answer----

Depreciation expense: Year 1 = $ 15,750

Depreciation expense: Year 2 = $ 15,750

Declining Balance Method working using twice the SLM rate:

A

Cost

$        3,15,000.00

B

Residual Value

$                           -  

C=A - B

Depreciable base

$       3,15,000.00

D

Life [in years]

20

E=C/D

Annual SLM depreciation

$            15,750.00

F=E/C

SLM Rate

5.00%

G=F x 2

DDB Rate

10.00%

Year

Beginning Book Value

Depreciation rate

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$    3,15,000.00

10.00%

$         31,500.00

$   2,83,500.00

$        31,500.00

2

$    2,83,500.00

10.00%

$         28,350.00

$   2,55,150.00

$        59,850.00

Answer----

Depreciation expense: Year 1 = $ 31,500

Depreciation expense: Year 2 = $ 28,350

A	Cost	$        3,15,000.00
B	Residual Value	$                           -
C=A - B	Depreciable base	$        3,15,000.00
D	Life [in years]	20
E=C/D	Annual SLM depreciation	$            15,750.00
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$    3,15,000.00	$            15,750.00	$      2,99,250.00	$       15,750.00
2	$    2,99,250.00	$            15,750.00	$      2,83,500.00	$       31,500.00