Question

At the beginning of 2016, Copland Drugstore purchased a new computer system for $52,000. It is expected to have a five-year life and a $7,000 salvage value. 2.a. Compute the depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation. (2) Double-declining-balance depreciation.

Answer 1

1) Straight Line Depreciation

($52,000 - $7,000) / 5 ==> $45,000 / 5 = $9,000 (Year 1 to Year 5)

2) Double-declining-balance depreciation.

Rate = 1/5 = 20% x 2 = 40%

Year 1 = $52,000 x 40% => $20,800

Year 2 = (52,000 - 20,800) x 40% => $12,480

Year 3 = (52,000 - 20,800 - 12,480) x 40% => $7,488

Year 4 = (52,000 - 20,800 - 12,480 - 7,488) x 40% => $4,492.8

Year 5 = (52,000 - 20,800 - 12,480 - 7,488 - 4,492.8) x 40% => $2695.68