Answer to Question #135683 in Accounting for Ritika

Question #135683
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
1
Expert's answer
2020-09-30T13:17:03-0400
SolutionSolution

Straight-line Depreciation rate=15=0.2=20%=\frac15=0.2=20\%

Declining Balance Rate=2×20%=40%=2\times20\%=40\%

Depreciation=40%×500000=200,000=40\%\times500000=200,000

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

Declining rate is still 40%40\%

Book value=CostAccumulated Depreciation=500,000200,000=300,000Depreciation=40%×300,000=120,000Book\ value=Cost-Accumulated\ Depreciation\\ =500,000-200,000\\ =300,000\\ Depreciation=40\%\times300,000\\ =120,000

Third Year.

Book value=500,000200,000120,000=180,000Depreciation=40%×180,000=72,000Book\ value=500,000-200,000-120,000\\ =180,000\\ Depreciation=40\%\times180,000\\ =72,000

Fourth Year.

Book value=500,000200,000120,00072,000=108,000Depreciation=40%×108,000=43,200Book\ value=500,000-200,000-120,000-72,000\\ =108,000\\ Depreciation=40\%\times108,000\\ =43,200

Fifth Year.

Book value=500,000200,000120,00072,00043,200=64,800Depreciation=40%×64,800=25,920Book\ 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(64,80025920=38880<54994.3564,800-25920=38880<54994.35 ).Therefore, depreciation would only be allowed up to the point where the Book value=Salvage value. This depreciation expense of9,805=(64,80054,994.35)is allowed.9,805=(64,800-54,994.35) is\ allowed. Same procedure will be replicated for 9years.


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