Oriole Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method. Year Straight-Line Sum-of-the- Years'-Digits Double-Declining- Balance 1 $12,600 $21,000 $28,000 2 12,600 16,800 16,800 3 12,600 12,600 10,080 4 12,600 8,400 6,048 5 12,600 4,200 2,072 Total $63,000 $63,000 $63,000 What is the cost of the asset being depreciated? Cost of asset What amount, if any, was used in the depreciation calculations for the salvage value for this asset? Salvage value Which method will produce the highest charge to income in Year 1? Which method will produce the highest charge to income in Year 4? Which method will produce the highest book value for the asset at the end of Year 3? If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Oriole Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.
|
Year
|
Straight-Line
|
Sum-of-the-
Years'-Digits |
Double-Declining-
Balance |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
1
|
$12,600 | $21,000 | $28,000 | |||||||||
|
2
|
12,600 | 16,800 | 16,800 | |||||||||
|
3
|
12,600 | 12,600 | 10,080 | |||||||||
|
4
|
12,600 | 8,400 | 6,048 | |||||||||
|
5
|
12,600 | 4,200 | 2,072 | |||||||||
|
Total
|
$63,000 | $63,000 | $63,000 |
What is the cost of the asset being
| Cost of asset |
What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
|
Salvage value |
Which method will produce the highest charge to income in Year 1?
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