Question

a pressurized spray painter was purchased on september 1 of the fiscal year for $4800 it has a useful life of 4 years and a residual value of $500 determine depreciation expense for the first two years assuming a fiscal year end of december 31 and using the straight line method and the declining balance method

Answer 1

Using the straight-line method: $2,150

Using the declining balance method: $3,600

Explanation:

The double-declining method is otherwise known as the reducing balance method and is given by the formula below:

Double declining method = 2 X SLDP X BV

SLDP = straight-line depreciation percentage

BV = Book value

Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($4,800 - $500) / 4 years = $1,075 yearly depreciation expense. Therefore, first two years would be $1,075 x 2 years = $2,150.

Under the double-declining method, 100%/4years = 25%, then 25% multiplied by 2 to give 50%

At Year 1, 50% X $4,800 = $2,400

At Year 2, 50% X $2,400 ($4,800 - $2,400) = $1,200

Therefore, first two years would be $3,600.

The depreciation expense would stop at a stage when amount falls below the residual value.

• Neglect the purchase date, since the question asked for depreciation expense for first 2 years.