# I. ASSET VALUATION AND DEPRECIATION EXERCISES

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```					               I. ASSET VALUATION AND DEPRECIATION EXERCISES

I STRAIGHT LINE DEPRECIATION

The first two problems provide a closer look at Straight Line versus Double Declining Balance
Depreciation. In these problems, assume all machinery is bought at the first of the year.

Machine                      Cost           Salvage Value         Useful Life

1) Tractor A                 50,000          20,000                      5

2) Tractor B                 60,000            0                         5

3) Combine                   84,000            0                         7

________________________________________________________________

Assume you own the machinery above. Calculate annual depreciation using the straight-line
method.

Tractor A               Tractor B               Combine
Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7
II. DOUBLE DECLINING BALANCE

Now Calculate annual depreciation on this machinery using double declining balance. Be
careful not to exceed the salvage value. If the salvage value is zero, switch to straight-line in the
year when straight-line yields higher depreciation. (Use the remaining value as the starting point
when you change.)

Tractor A                Tractor B                Combine
Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

III. Calculate annual average interest costs for the three items. Use an interest rate of
10%

Tractor A ________________________

Tractor B ________________________

Combine ________________________
IV. DEPRECIATION RECORDS

I.M. Farmer lost all depreciation records from past years and needs help reconstructing a
depreciation schedule through 2004.

From the following information, calculate the depreciation for each item for each appropriate
year. For items purchased during the year, only a prorated part of the first year’s
depreciation can be taken. Use the attached form and complete all columns including the
totals. Watch the purchase dates and begin depreciation in the year of the purchase, not
before.

For convenience, round everything to the nearest whole dollar.

Deprec.                   Useful                       Salvage
Purchase Date         Item           Method                    Life        Cost              Value

1) Jan. 1, 2001       Truck          S/L                       10          \$32,420          \$8,800

2) July 1, 2001       Combine        DDB                       5           \$131,000         \$25,000

3) Sept. 1, 2001      Tractor     150% Declining               8           \$86,840          \$15,000
Balance

4) Jan. 1, 2002       Planter        SOYD                      10          \$28,335          \$6,500

5) Jan. 1, 2002       Pickup         DDB and S.L.*             8           \$17,955          \$4,800

*Use DDB for 2002 and 2003, then switch to S.L. for 2004
DEPRECIATION SCHEDULE I.M. FARMER

2001                 2002                 2003                 2004
Cost                        Depre-
Date     or      Salvage            ciation   Depre-       Book    Depre-       Book    Depre-       Book    Depre-       Book
Item   Acqu.   Basis     Value     Life    m ethod   ciation      value   ciation      value   ciation      value   ciation      value

TOTALS

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