Question

Blossom Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods.

You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.
Year Straight-Line Sum-of-the- Years'-Digits Double-Declining- Balance
1 $13,140 $21,900 $29,200
2 13,140 17,520 17,520
3 13,140 13,140 10,512
4 13,140 8,760 6,307
5 13,140 4,380 2,161
Total $65,700 $65,700 $65,700
Required:
(A) What is the cost of the asset being depreciated?
(B) What amount, if any, was used in the depreciation calculations for the salvage value for this asset?

Answer 1

A) to determine the cost of the asset being depreciated we must use the first year's depreciation using the double declining method to find 40% of the asset's value:

40% of the asset's value = $29,200

asset's value = $29,200 / 40% = $73,000

B) salvage value = asset's value - total depreciation = $73,000 - $65,700 = $7,300