Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
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Chapter 8, Problem 6BTN

1.

To determine

To compute:

The amount of depreciation.

1.

Expert Solution
Check Mark

Explanation of Solution

Given,

Cost of the van is $44,000.

Salvage value is $2,000.

Useful life is 4 years.

Formula to calculate depreciable cost:

Depreciablecost=CostofmachineSalvagevalue

Substitute $44,000 as cost of the van and $2,000 as salvage value,

Depreciablecost=$44,000$2,000=$42,000

Total depreciable cost is $42,000.

Computation of depreciation amount,

Year Straight line
($)
Units of production
($)
Double Declining Balance
($)
2013 10,500 8,400 22,000
2014 10,500 12,600 11,000
2015 10,500 14,000 5,500
2016 10,500 7,000 2,750
Total 42,000 42,000 42,000

Table (1)

Working Note:

Useful years are 4 years.

Total cost is $42,000.

Straight line method

Formula to calculate depreciation:

Depreciation=(CostoftheassetResidualvalue)Usefullife=$44,000$2,0004=$42,0004=$10,500

Depreciation that will be charged in the 4 years with respect o straight line method is $10,500.

Units of production method

Year 2013

Given,

Total miles driven in year 1 are $12,000.

Total cost is $44,000.

Total miles driven are $60,000.

Formula to calculate depreciation with respect to units of production:

Depreciationperunit=(CostoftheassetSalvagevalue)Usefullifeinunits=$44,000$2,000$60,000units=$42,00060,000=0.7perunit

Depreciation per unit is 0.7 per miles.

Computation of depreciation:

Depreciation=Totalmilesdrivenin1styear×Depreciationpermile=$12,000×0.7=$8,400

Depreciation that will be charged in the first year is $8,400.

Double declining balance method

Given,

Book value of the asset is $44,000.

Useful life is 4 years.

Computation of depreciation rate:

Doubledecliningdepreciationrate=100%usefulyears×2=100%4×2=50%

Double declining depreciation rate is 50%.

Computation of depreciation in the first year:

Depreciation=Costofthemachine×Depreciationrate=$44,000×50%=$22,000

Depreciation that will be charged in the first year is $22,000.

Year 2014

Unit of production method

Miles driven are $18,000 (given).

Depreciation per mile is 0.7 per unit (calculated above).

Computation of depreciation,

Depreciation=Totalmilesdrivenin1styear×Depreciationpermile=$18,000×0.7=$12,600

Depreciation that will be charged in the second year is $12,600.

Double declining balance method

Computation of book value in year 2:

Bookvalue=CostoftheassetDepreciation=$44,000$22,000=$22,000

Book value at the beginning of the 2014 year is $22,000.

Computation of depreciation in the second year:

Depreciation=Costofthemachine×Depreciationrate=$22,000×50%=$11,000.

Depreciation that will be charged in the 2014 year is $11,000.

Year 2015

Unit of production method

Miles driven are $21,000 (given).

Depreciation per mile is 0.7 per unit (calculated above).

Computation of depreciation,

Depreciation=Totalmilesdrivenin1styear×Depreciationpermile=$21,000×0.7=$14,000

Depreciation that will be charged in the second year is $14,000.

Double declining balance method

Computation of book value in year 2:

Bookvalue=CostoftheassetDepreciation=$22,000-$11,000=$11,000

Book value at the beginning of the 2015 year is $11,000.

Computation of depreciation in the 2015 year:

Depreciation=Costofthemachine×Depreciationrate=$11,000×50%=$5,500.

Depreciation that will be charged in the 2015 year is $5,500.

Year 2016

Unit of production method

Miles driven are $10,000 (given).

Depreciation per mile is 0.7 per unit (calculated info).

Computation of Depreciation,

Depreciation=Totalmilesdrivenin1styear×Depreciationpermile=$10,000×0.7=$7,000

Depreciation that will be charged in the second year is $7,000.

Double Declining Balance method

Computation of book value in year 2:

Bookvalue=CostoftheassetDepreciation=$11,000$5,500=$5,500

Book value at the beginning of the 2016 year is $5,500.

Computation of depreciation in the 2016 year:

Depreciation=Costofthemachine×Depreciationrate=$5,500×50%=$2,750.

Depreciation that will be charged in the 2016 year is $2,750.

2.

To determine

To explain:

The treatment of annual depreciation.

2.

Expert Solution
Check Mark

Explanation of Solution

• The annual depreciation will be calculated annually at the end of the financial period.

• The annual depreciation will be treated as an expense for the company and will come in the debit side of the profit and loss account.

Hence, the annual depreciation will be treated as an expense.

3.

To determine

To explain:

the impact of depreciation method as compared to van’s life.

3.

Expert Solution
Check Mark

Explanation of Solution

• In straight line method the depreciation remains constant throughout the course of life. Hence, the same amount of depreciation will be deducted from the net income.

• In the unit of production method, it is calculated as peer the miles driven, it is an effective way of applying depreciation and the burden of depreciation expense shift from year to year as per the vehicle used.

• In double declining method, the depreciation applied is more in the initial years and very less in the end years and the less amount is deducted at the end years, thereby less expenses is deducted from the net income at the end years of the vehicle.

Hence, the impact of depreciation is different in each method.

4.

To determine

To compute:

The book value for each year.

4.

Expert Solution
Check Mark

Explanation of Solution

Double declining balance method

Year 2014

Double declining balance method

Computation of book value in year 2014:

Bookvalue=CostoftheassetDepreciation=$44,000-$22,000=$22,000

Year 2015

Book value at the beginning of the year 2015 is $22,000.

Double declining balance method

Computation of book value in year 2015:

Bookvalue=CostoftheassetDepreciation=$22,000-$11,000=$11,000

Hence, the book value is $11,000

Year 2016

Book value at the starting of the year is $11,000.

Double declining balance method

Computation of book value in year 2016:

Bookvalue=CostoftheassetDepreciation=$11,000-$5,500=$5,500

The book value will be reported in the asset side of the balance sheet.

Hence, the book value will be shown in the asset side of the balance sheet.

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Chapter 8 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

Ch. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQCh. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Prob. 13DQCh. 8 - Prob. 14DQCh. 8 - Prob. 15DQCh. 8 - Prob. 16DQCh. 8 - Prob. 17DQCh. 8 - Prob. 18DQCh. 8 - Prob. 19DQCh. 8 - Prob. 20DQCh. 8 - Prob. 21DQCh. 8 - Prob. 1QSCh. 8 - Prob. 2QSCh. 8 - Prob. 3QSCh. 8 - Prob. 4QSCh. 8 - Prob. 5QSCh. 8 - Prob. 6QSCh. 8 - Prob. 7QSCh. 8 - Prob. 8QSCh. 8 - Prob. 9QSCh. 8 - Prob. 10QSCh. 8 - Prob. 11QSCh. 8 - Prob. 12QSCh. 8 - Prob. 13QSCh. 8 - Prob. 14QSCh. 8 - Prob. 15QSCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Prob. 4ECh. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - Prob. 14ECh. 8 - Prob. 15ECh. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Prob. 18ECh. 8 - Prob. 19ECh. 8 - Prob. 20ECh. 8 - Prob. 21ECh. 8 - Prob. 22ECh. 8 - Prob. 23ECh. 8 - Prob. 24ECh. 8 - Prob. 25ECh. 8 - PROBLEM SET A Problem 81A Plant asset costs;...Ch. 8 - Prob. 2PSACh. 8 - Prob. 3PSACh. 8 - Prob. 4PSACh. 8 - Prob. 5PSACh. 8 - Prob. 6PSACh. 8 - Prob. 7PSACh. 8 - Prob. 8PSACh. 8 - Prob. 1PSBCh. 8 - Prob. 2PSBCh. 8 - Prob. 3PSBCh. 8 - Prob. 4PSBCh. 8 - Prob. 5PSBCh. 8 - Prob. 6PSBCh. 8 - Prob. 7PSBCh. 8 - Prob. 8PSBCh. 8 - Prob. 8SPCh. 8 - Prob. 1BTNCh. 8 - Prob. 2BTNCh. 8 - Prob. 3BTNCh. 8 - Prob. 4BTNCh. 8 - Prob. 5BTNCh. 8 - Prob. 6BTNCh. 8 - Prob. 7BTNCh. 8 - GOOGLE Google Inc. CONSOLIDATED BALANCE SHEETS (In...Ch. 8 - Prob. 9BTN
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