Question

Sheffield Corporation purchased machinery on January 1, 2017, at a cost of $250,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $24,000. The company is considering different depreciation methods that could be used for financial reporting purposes.Required:Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate.

Answer 1

Answer and Explanation:

(A) Depreciation Schedules Under Straight line method

Depreciation rate under straight line method = 1 ÷ Useful life of asset

= 1 ÷ 4

=25%

Depreciable cost = Cost of the Asset - Salvage value

= $250,000 - $24000

= $226,000

Year Depreciable Depreciation Annual Accumulated Book

cost rate Depreciation Depreciation Value

Expense

2017 $226,000 25% $565,00 56,500 $193,500

($250,000 - $56,500)

2018 $226,000 25% $565,00 $113,000 $137,000

($193,500 - $56,500)

2019 $226,000 25% $565,00 $169,500 $80,500

($137,000 - $56,500)

2020 $226,000 25% $565,00 $226,000 $24,000

($80,500 - $56,500)

For computing the annual depreciation we simply multiply the depreciable cost with depreciation rate.

(B) Depreciation Schedules Under Double declining balance method

Depreciation rate under Double declining Balance method

= 2 × Straight line method

= 2 × 25%

= 50%

Year Book value Depreciation Annual Accumulated Book

beginning rate Depreciation Depreciation Value

of the year Expense

2017 $250,000 50% $125,000 $125,000 $125,000 2018 $125,000 50% $62,500 $187,500 $62,500 2019 $62,500 50% $31,250 $218,750 $31,250

2020 $31,250 $7,250 $226,000 $24,000

For computing the annual depreciation expenses we simply multiply the book value beginning of the year with depreciation rate.

2020 Depreciation balance

= Book Value beginning 2020 - Salvage value

= $31,250 - $24,000

= $7,250