Answer to Question #135683 in Accounting for Ritika

Question

Machine cost = 5 lack
Salvage value = 54994.35
Find book value of machine after 5 years and also find accumulated depreciation after nine years .
By using db method

Answer 1

$$Solution$$

Straight-line Depreciation rate$=\frac15=0.2=20\%$

Declining Balance Rate$=2\times20\%=40\%$

Depreciation$=40\%\times500000=200,000$

Then, Calculate the depreciation of the asset for the second year of it's life.

Declining rate is still $40\%$

$Book\ value=Cost-Accumulated\ Depreciation\\ =500,000-200,000\\ =300,000\\ Depreciation=40\%\times300,000\\ =120,000$

Third Year.

$Book\ value=500,000-200,000-120,000\\ =180,000\\ Depreciation=40\%\times180,000\\ =72,000$

Fourth Year.

$Book\ value=500,000-200,000-120,000-72,000\\ =108,000\\ Depreciation=40\%\times108,000\\ =43,200$

Fifth Year.

$Book\ value=500,000-200,000-120,000-72,000-43,200\\ =64,800\\ Depreciation=40\%\times64,800\\ =25,920$

The depreciation calculated above will decrease the Book value of the asset below it's estimated residual value($64,800-25920=38880<54994.35$ ).Therefore, depreciation would only be allowed up to the point where the Book value=Salvage value. This depreciation expense of$9,805=(64,800-54,994.35) is\ allowed.$ Same procedure will be replicated for 9years.