Chapter 6, Problem 6.23P

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $\text{Annual Straight line depreciation = }\frac{\left(\text{Cost- Salvage Value}\right)}{\text{Estimated life in years}}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $\text{Double declining depreciation rate = }\frac{\text{2}}{\text{Expected life in years}}$

Requirement-a:

To Calculate:

The depreciation expense for each year using both the depreciation methods

Answer to Problem 6.23P

The depreciation expense for each year using both the depreciation methods is as follows:

Straight Line Method:
	Depreciation for the year
Year- 2016	$ 11,400
Year- 2017	$ 22,800
Year- 2018	$ 22,800
Year- 2019	$ 22,800
Year- 2020	$ 22,800
Year- 2021	$ 11,400

Double Declining balance Method:
	Depreciation for the year
Year- 2016	$ 26,400
Year- 2017	$ 42,240
Year- 2018	$ 25,344
Year- 2019	$ 15,206
Year- 2020	$ 9,124
Year- 2021	$ 2,737

Explanation of Solution

The depreciation expense for each year using both the depreciation methods is calculated as follows:

Straight Line Method:
	Number of Months Asset used in the year	Annual Depreciation	Depreciation for the year	Accumulated Depreciation	Ending Net Book value
	A	B =(132000-18000)/5	C=B*A/12	D	132000-D
Year- 2016	6	$ 22,800	$ 11,400	$ 11,400	$ 120,600
Year- 2017	12	$ 22,800	$ 22,800	$ 34,200	$ 97,800
Year- 2018	12	$ 22,800	$ 22,800	$ 57,000	$ 75,000
Year- 2019	12	$ 22,800	$ 22,800	$ 79,800	$ 52,200
Year- 2020	12	$ 22,800	$ 22,800	$ 102,600	$ 29,400
Year- 2021	6	$ 22,800	$ 11,400	$ 114,000	$ 18,000

Double Declining balance Method:
	Beginning Net Book value	Number of Months Asset used in the year	Depreciation Rate	Depreciation for the year	Ending Net Book value
	A	B	C =2/5	C =A*B*C/12	D=A-C
Year- 2016	$ 132,000	6	40%	$ 26,400	$ 105,600
Year- 2017	$ 105,600	12	40%	$ 42,240	$ 63,360
Year- 2018	$ 63,360	12	40%	$ 25,344	$ 38,016
Year- 2019	$ 38,016	12	40%	$ 15,206	$ 22,810
Year- 2020	$ 22,810	12	40%	$ 9,124	$ 13,686
Year- 2021	$ 13,686	6	40%	$ 2,737	$ 10,949

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $\text{Annual Straight line depreciation = }\frac{\left(\text{Cost- Salvage Value}\right)}{\text{Estimated life in years}}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $\text{Double declining depreciation rate = }\frac{\text{2}}{\text{Expected life in years}}$

Requirement-b:

To Calculate:

The depreciation expense for the year ended Dec. 31, 2016 using both the depreciation methods

Answer to Problem 6.23P

The depreciation expense for the year ended Dec. 31, 2016 using both the depreciation methods is as follows:

Straight Line Method:
	Depreciation for the year
Year- 2016	$ 11,400

Double Declining balance Method:
	Depreciation for the year
Year- 2016	$ 26,400

Explanation of Solution

The depreciation expense for each year using both the depreciation methods is calculated as follows:

Straight Line Method:
	Number of Months Asset used in the year	Annual Depreciation	Depreciation for the year	Accumulated Depreciation	Ending Net Book value
	A	B =(132000-18000)/5	C=B*A/12	D	132000-D
Year- 2016	6	$ 22,800	$ 11,400	$ 11,400	$ 120,600
Year- 2017	12	$ 22,800	$ 22,800	$ 34,200	$ 97,800
Year- 2018	12	$ 22,800	$ 22,800	$ 57,000	$ 75,000
Year- 2019	12	$ 22,800	$ 22,800	$ 79,800	$ 52,200
Year- 2020	12	$ 22,800	$ 22,800	$ 102,600	$ 29,400
Year- 2021	6	$ 22,800	$ 11,400	$ 114,000	$ 18,000

Double Declining balance Method:
	Beginning Net Book value	Number of Months Asset used in the year	Depreciation Rate	Depreciation for the year	Ending Net Book value
	A	B	C =2/5	C =A*B*C/12	D=A-C
Year- 2016	$ 132,000	6	40%	$ 26,400	$ 105,600
Year- 2017	$ 105,600	12	40%	$ 42,240	$ 63,360
Year- 2018	$ 63,360	12	40%	$ 25,344	$ 38,016
Year- 2019	$ 38,016	12	40%	$ 15,206	$ 22,810
Year- 2020	$ 22,810	12	40%	$ 9,124	$ 13,686
Year- 2021	$ 13,686	6	40%	$ 2,737	$ 10,949

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $\text{Annual Straight line depreciation = }\frac{\left(\text{Cost- Salvage Value}\right)}{\text{Estimated life in years}}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $\text{Double declining depreciation rate = }\frac{\text{2}}{\text{Expected life in years}}$

Requirement-c:

To Calculate:

The accumulated depreciation and net book value of the machine at Dec. 31, 2017 using both the methods

Answer to Problem 6.23P

The accumulated depreciation and net book value of the machine at Dec. 31, 2017 using both the methods is as follows:

Straight Line Method:
	Accumulated Depreciation	Ending Net Book value
Year- 2017	$ 34,200	$ 97,800

Double Declining balance Method:
	Depreciation for the year	Ending Net Book value
Year- 2017	$ 42,240	$ 63,360

Explanation of Solution

The depreciation expense and net book value for each year using both the depreciation methods is calculated as follows:

Straight Line Method:
	Number of Months Asset used in the year	Annual Depreciation	Depreciation for the year	Accumulated Depreciation	Ending Net Book value
	A	B =(132000-18000)/5	C=B*A/12	D	132000-D
Year- 2016	6	$ 22,800	$ 11,400	$ 11,400	$ 120,600
Year- 2017	12	$ 22,800	$ 22,800	$ 34,200	$ 97,800
Year- 2018	12	$ 22,800	$ 22,800	$ 57,000	$ 75,000
Year- 2019	12	$ 22,800	$ 22,800	$ 79,800	$ 52,200
Year- 2020	12	$ 22,800	$ 22,800	$ 102,600	$ 29,400
Year- 2021	6	$ 22,800	$ 11,400	$ 114,000	$ 18,000

Double Declining balance Method:
	Beginning Net Book value	Number of Months Asset used in the year	Depreciation Rate	Depreciation for the year	Ending Net Book value
	A	B	C =2/5	C =A*B*C/12	D=A-C
Year- 2016	$ 132,000	6	40%	$ 26,400	$ 105,600
Year- 2017	$ 105,600	12	40%	$ 42,240	$ 63,360
Year- 2018	$ 63,360	12	40%	$ 25,344	$ 38,016
Year- 2019	$ 38,016	12	40%	$ 15,206	$ 22,810
Year- 2020	$ 22,810	12	40%	$ 9,124	$ 13,686
Year- 2021	$ 13,686	6	40%	$ 2,737	$ 10,949