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a.
Compute the
a.
Explanation of Solution
Double-declining-balance method:
It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less
Book value:
The amount of acquisition cost of less accumulated depreciation as on a particular date is referred to as book value.
Formula for book value:
Accumulated depreciation:
The total amount of depreciation expense deducted, from the time asset acquired till date, as reported in the account as on a particular date, is referred to as accumulated depreciation.
Formula for accumulated depreciation:
Compute the depreciation expense for four years, using double-declining-balance depreciation as follows.
| Date | Double-Declining-Balance Depreciation Rate (A) | Book Value (Refer note) (in $) (B) | Depreciation expense (in $) |
| 2018 | 0.50 | 38,000 | 19,000 |
| 2019 | 0.50 | 19,000 | 9,500 |
| 2020 | 0.50 | 9,500 | 4,750 |
| 2021 |
0.50 | 4,750 |
1,250 (W.N.1) |
Table (1)
Working note 1:
Compute depreciation expense on 2021.
Note:
Determine the depreciation rate applied each year.
Useful life = 4 years
Hence, the depreciation expenses for each of the four years, using double-declining-balance depreciation are $19,000, $9,500, $4,750, and $1,250 respectively.
b.
Compute the depreciation expense for each of the four years, using units-of-production depreciation.
b.
Explanation of Solution
Units-of-production method:
Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate.
Compute the depreciation expense for each of the four years, using units-of-production depreciation as follows.
| Date | Depreciation per unit (A) | Number of pages (B) | Depreciation expense (in $) |
| 2018 | $0.023 | 390,000 | 8,970 |
| 2019 | $0.023 | 410,000 | 9,430 |
| 2020 | $0.023 | 420,000 | 9,660 |
| 2021 |
$0.023 | 300,000 |
6,440 (W.N 3) |
Table (2)
Working note 2:
Compute depreciation per unit.
Working note 3:
Compute depreciation expense on 2021.
Hence, the depreciation expenses for each of the four years, using units-of-production depreciation are $8,970, $9,430, $9,660, and $6,440 respectively.
c.
Calculate the gain or loss from the sale of the asset under each of the depreciation methods.
c.
Explanation of Solution
A schedule to calculate the gain or loss on the sale of the printer under double-declining balance depreciation is as follows:
| Particulars | $ | $ |
| Consideration received | 1,650 | |
| Less: Book value: | ||
| Cost of the printer | 38,000 | |
| Accumulated depreciation (W.N. 4) | (34,500 | (3,500) |
| Gain on sale of printer | $ (1,850) |
Table (3)
A schedule to calculate the gain or loss on the sale of the printer under units-of-production depreciation is as follows:
| Particulars | $ | $ |
| Consideration received | 1,650 | |
| Less: Book value: | ||
| Cost of the printer | 38,000 | |
| Accumulated depreciation (W.N. 5) | (34,500 | (3,500) |
| Gain on sale of printer | $ (1,850) |
Table (4)
Working notes 4:
Calculate the accumulated depreciation under double-declining-balance depreciation.
Working notes 5:
Calculate the accumulated depreciation under units-of-production depreciation.
Hence, the loss from the sale of the asset under double-declining-balance depreciation and units-of-production depreciation are the same amount of $1,850.
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