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Calculate Double Declining Balance Depreciation Cost - PDF

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					                                    Problem 4

A company buys equipment for $90,000. The company expects the equipment
will last 5 years, at which time its scrap value will be $30,000. The company's
tax rate is 40%. The company uses the straight-line depreciation method for
financial reporting purposes and the double declining balance depreciation
method for tax purposes.

1.   Calculate the annual depreciation, accumulated deprecation and book
     value of the equipment for years 1 - 5 using the straight-line depreciation
     method.
2.   Calculate the annual depreciation, accumulated deprecation and book
     value of the equipment for years 1 - 5 using the sum of the years' digits
     depreciation method.
3.   Calculate the annual depreciation, accumulated deprecation and book
     value of the equipment for years 1 - 5 using the double declining balance
     depreciation method.
4.   Compute the company's deferred tax liability for years 1 - 5.
                        Problem 4
                Straight-Line Depreciation
Cost = $90,000, Scrap Value = $30,000, Useful Life = 5 years


      Annual                             Cost - Scrap Value
                            =
Depreciation Expense                        Useful Life

                                          $_____ - $_____
                            =
                                             ___ years

                            =             $_____ per year

         Historical      Annual       Accumulated       Book
Year       Cost        Depreciation   Depreciation      Value
 1       ________       ________       ________       ________
 2       ________       ________       ________       ________
 3       ________       ________       ________       ________
 4       ________       ________       ________       ________
 5       ________       ________       ________       ________
                                Problem 4
                   Sum of the Years' Digits Depreciation
        Cost = $90,000, Scrap Value = $30,000, Useful Life = 5 years


                                                                          N+1-Y
 Depreciation Expense in Year Y          =     (Cost - Scrap Value) ×
                                                                        1+2+…+N

              Cost -                      Annual       Accumulated          Book
 Year      Scrap Value     Mulitplier   Depreciation   Depreciation         Value
  1         ________       ________      ________       ________          ________
  2         ________       ________      ________       ________          ________
  3         ________       ________      ________       ________          ________
  4         ________       ________      ________       ________          ________
  5         ________       ________      ________       ________          ________

                                                                        N × (N + 1)
N = Expected useful life                     1+2+…+N=
                                                                            2
                                Problem 4
                 Double Declining Balance Depreciation
        Cost = $90,000, Scrap Value = $30,000, Useful Life = 5 years


            Opening                       Annual             Accumulated          Book
 Year        Balance       Mulitplier   Depreciation         Depreciation         Value
  1         ________       ________      ________             ________          ________
  2         ________       ________      ________             ________          ________
  3         ________       ________      ________             ________          ________
  4         ________       ________      ________             ________          ________
  5         ________       ________      ________             ________          ________

                                        Dy = Oy × M,
           O1 = Cost,                                           A0 = 0,
                           M=2÷N        but no larger than                    By = By-1 - Dy
           Oy = By-1                                         Ay = Ay-1 + Dy
                                            V - Ay-1

N = Expected useful life                               V = Cost - Scrap Value
                                Problem 4
                          Deferred Tax Liability
        Cost = $90,000, Scrap Value = $30,000, Useful Life = 5 years


                     Double
         Straight   Declining                           Deferred       Deferred
           Line      Balance                               Tax           Tax
Year     Deprec.     Deprec.    Difference   Tax Rate    Expense       Liability
  1     ________    ________    ________       40%      ________       ________
  2     ________    ________    ________       40%      ________       ________
  3     ________    ________    ________       40%      ________       ________
  4     ________    ________    ________       40%      ________       ________
  5     ________    ________    ________       40%      ________       ________
Total

				
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