Rembrandt company acquired a plant asset at the beginning of year one. The asset has an estimated service life of five 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 $9000 $15,000 $20,000 2 $9000 $12,000 $12,000 3 $9000 $9000 $7200 4 $9000 $6000 $4320 5 $9000 $3000 $1480 Total $45,000 $45,000 $45,000 a) what is the cost of the asset being depreciated? b) what amount, if any, was used in the depreciation calculations for the salvage value for this asset? c) which method will produce the highest charge to income in Year 1?
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.
Rembrandt company acquired a plant asset at the beginning of year one. The asset has an estimated service life of five 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
| Year | straight line | sum of the years digits | double declining balance |
| 1 | $9000 | $15,000 | $20,000 |
| 2 | $9000 | $12,000 | $12,000 |
| 3 | $9000 | $9000 | $7200 |
| 4 | $9000 | $6000 | $4320 |
| 5 | $9000 | $3000 | $1480 |
| Total | $45,000 | $45,000 | $45,000 |
a) what is the cost of the asset being
b) what amount, if any, was used in the depreciation calculations for the salvage value for this asset?
c) which method will produce the highest charge to income in Year 1?
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