For each of the following fixed assets, determine the depreciation expense for year 3: disposal date is n/a if asset is still in use. method: sl = straight-line; ddb = double declining balance assume the estimated life is 5 years for each asset. item cost residual value purchase date disposal date depreciation method depreciation expense year 3 a $40,000 $4,000 july 1, year 3 n/a sl $ 3,600 b $50,000 $5,000 jan. 1, year 1 aug. 31,year 3 sl $ 6,000 c $60,000 $2,000 oct. 1, year 3 n/a ddb $ 6,000 d $80,000 $10,000 jan. 1, year 2 april 1, year 3 ddb $ 14,400

(i) $3,600  

(ii) $6,000

(iii) $6,000

(iv) $4,800

Explanation:

Item A:

Depreciation per annum = (Cost - Residual Value) ÷ Useful life

= (40,000 - 4,000) ÷ 5

= 36,000 ÷ 5

= $7,200

Since the asset was purchased on July 1, year 3, it was in use for 6 months.

Depreciation for year 3

= Depreciation per annum × 6/12

= $7200 × 6/12

= $3,600  

Item B:

Depreciation per annum = (Cost - Residual Value) / Useful life

= (50,000 - 5,000) ÷ 5

= 45,000 ÷ 5

= $9,000

Since it was sold on August 31, year 3, it was in use in year 3 for 8 months.

Depreciation for year 3 :

= Depreciation per annum × 8/12

= 9,000 × 8/12

= $6,000

Item C:

Depreciation under SL = (Cost - Residual Value) ÷ Useful life

= (60,000 - 2,000) × 5

= 58,000 × 5

= $11,600

Depreciation rate under SL = Depreciation ÷ Cost

                                              = 11600 ÷ 58000

                                              = 20%

Depreciation rate under DDB method = 20 × 2

                                                               = 40%

Since it was purchased on Oct 1 year 3, it was in use for 3 months.

Depreciation for year 3:

= Cost × Rate × 3/12

= 60,000 × 40% × 3/12

= $6,000

Item D:

Depreciation under SL = (Cost - Residual Value) ÷ Useful life

= (80,000 - 10,000) ÷ 5

= 70,000 ÷ 5

= $14,000

Depreciation rate under SL = Depreciation ÷ Cost

                                              = 14,000 ÷ 70,000

                                              = 20%

Depreciation rate under DDB method = 20 × 2

                                                                = 40%

Depreciation for year 2 = $80,000 × 40%

                                       = $32,000

Net Book Value at the end of year 2 = 80,000 - 32,000

                                                             = $48,000

Since it was sold on April 1 year 3, it was in use in Year 3 for 3 months.

Depreciation for year 3 :

= Book Value × Rate × 3/12

= 48000 × 40% × 3/12

= $4,800

A. Depreciation expense Year 3, (SL)= 3600

 B. Depreciation expense Year 3, Aug 31 (SL)= 6000

C. Depreciation Expense Year 3, (DDB)= 6000

D. Depreciation Expense Year 3 April 1 (DDB)= 4800

Explanation:

The straight line method of depreciation spreads depreciation over the life of an asset equally each year. In other words, yearly depreciation is fixed.

It is calculated as: SL; Depreciation expense= (Cost-Residual value)/ (lifetime of asset)

A.Depreciation expense= (40000-4000)/5

Depreciation expense= 7200 (yearly depreciation)

7200 is yearly depreciation value;

Depreciation expense in year 3= 7200(6/12), where 6 is the number of months from July 1, year 3 to December 31, year 3.

Depreciation expense in year 3= 3600

B.Depreciation expense= (50000-5000)/5

Depreciation expense= 9000 (yearly depreciation)

9000 is yearly depreciation value;

Depreciation expense in year 3= 9000(8/12), where 8 is the number of months from January 1, year 3 to August 31, year 3.

Depreciation expense in year 3= 6000

The double declining balance method of depreciation works in such a way that higher values of depreciation are deducted in the early years of the asset. It ignores the residual values. It is calculated as:

DDB expense= (DDB%)(Book value)

Where: DDB%= (100%/Lifetime)2

Book value= Cost- Accumulated depreciation

C.DDB%= (100%/5)2

DDB%= 40%

Thus, DDB expense = 40%(60000)

DDB expense = 24000

24000 is one year depreciation, so we have to convert this into 3 months (i.e October1, year3 to December 31, year 3) by multiplying by (3/12)

DDB depreciation expense = 24000(3/12) =6000

D. For explanation of this please find attached file below.