Waterway 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. What is the cost of the asset being depreciated? Year Straight-Line Sum-of-the-Years'-Digits Double-Declining-Balance 1 $12,420 $20,700 $27,600 2 12,420 16,560 16,560 3 12,420 12,420 9,936 4 12,420 8,280 5,962 5 12,420 4,140 2,042 Total $62,100 $62,100 $62,100
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.
Waterway 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. What is the cost of the asset being
|
Year
|
Straight-Line
|
Sum-of-the-
Years'-Digits |
Double-Declining-
Balance |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | $12,420 | $20,700 | $27,600 | |||||||||
| 2 | 12,420 | 16,560 | 16,560 | |||||||||
| 3 | 12,420 | 12,420 | 9,936 | |||||||||
| 4 | 12,420 | 8,280 | 5,962 | |||||||||
| 5 | 12,420 | 4,140 | 2,042 | |||||||||
| Total | $62,100 | $62,100 | $62,100 |
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