# 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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