pment Theliabinty Test Your Knowledge Which GAAP requires

pment. Theliabinty . Test Your Knowledge . Which GAAP requires the use of depre- ciation for assets that have useful lives beyond 1 year? Explain why this is the deferred the taxes represent interest-free rred nanent magic. And, often, growing are not money. If an growing are not2. Explain the four steps in the deprecia- E t losing tion process then it doesnt3. The York City Hospital has just acquired new equipment. The equipment cost $4,250,000, and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The equipment is expected to have a 10-year useful life and a salvage value of 10% (i.e., $425,000). Calculate the first 5 years of depreciation, using SL, DDB, the deferred repay an attempt to s used up over a with the revenues over s their useful and SYD A new medical practice purchases computer equipment that cost $15,000, to be used for medical billing. In addi- tion, the practice purchases billing software that cost $5,000. Both the computer equipment and the software are expected to have 3-year useful lives and no salvage value. Calculate the 3 years of depreciation, using SL, DDB, 4. m for the spread of time. Depreci rtization. ated Cost of an depreciated over st is the fair mar- isition, plus costs plus the costs of sset. set may be depre 5. The New Hospital has raised money for ting in an equal h year, or by an results in greater ears of the asset\'s ted depreciation a new oncology wing. The hospital has also acquired medical diagnostic equip- ment that cost $500,000. In addition, the hospital paid $15,000 to ship the equipment from the manufacturer and $40,000 to install the equipment. The equipment is expected to have a 6-year useful life and a $30,000 salvage value. Calculate the 6 years of depreciation, cost recovery tion method used x income reported using SL., DDB, and SYD n that reported to For-profit organizations can use differ- ent methods for reporting depreciation to owners and to the government (for tax purposes). What is the practical 6. will arise; that is nse becomes a lia stated time in the d currently. effect of this allowance?

Solution

1. ASC 360 Property, Plant, and Equipment governs the depreciation methods.

2.

3.

(D). Depreciation Caluculation:

   Stright Line Depreciation:   

   = 42,50,000 + 1,35,000 - 4,25,000 / 10 Years

   = 39,60,000 / 10 Years

   = 3,96,000

   Asset Value 42,50,000

Less: 1 Year Depre 3,96,000

   Balance = 38,54,000

   Less: 2nd Year Depreci 3,96,000

   Balance = 34,58,000

   Less: 3rd Year Depreci 3,96,000

Balance = 30,62,000

   Less: 4th Year Depreci 3,96,000

   Balance = 26,66,000

   Less: 5 th Year Depreci 3,96,000

Balance = 18,70,000

(2). Double Declining Balance Method:

(3).
   Sum_of the Years-Digits Method:

Depreciation =   

Sum-of the Years Value:

Sum-of the Years Value = 10 ( 10+1)2

   = 55

Depreciation

Year

Depreciation
Expense

2018

$720,000

2019

$648,000

2020

$576,000

2021

$504,000

2022

$432,000

PART 4

Stright Line Depreciation:   

   =15,000 + 5,000 - 0 / 3 Years

   = 20,000 / 3 Years

   = 6,667 for year 1,2 and 3

2). Double Declining Balance Method:

Sum_of the Years-Digits Method:

Depreciation =   

Sum-of the Years Value:

Sum-of the Years Value = 3( 3+1)2

   = 6

Depreciable Base =$ 20000

Depreciation = 20,000 * 3 Yeasr / 6

   = 10000

Dep for year 2 = $ 6667

Dep for year 3 = $ 3333

Depreciation = Asset Value - Solvage Value / No. of Years