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Unformatted text preview: E79 A Kubota tractor acquired on January 9 at a cost of $75,000 has an estimated useful life of 20 years. Assuming that it will have no residual value, determine the depreciation for each of the first two years (a) by the straightline method and (b) by the doubledecliningbalance method. Solution: (a) Straightline method Annual depreciation expense = (Cost – Residual value)/Estimated useful life = ($75,000 – 0)/20 years = $3,750 per year Therefore, Year 1 depreciation = $3,750 Year 2 depreciation = $3,750 Please note: For the 1st year, the entire year’s depreciation is charged and not excluding 9 days in January as 9 days is considered negligible as against an estimated useful life of 20 years. (b) Doubledeclining balance method Doubledeclining rate = Straightline rate x 2 = (1/20) x 2 = 0.1 (or) 10% per year Annual depreciation expense = Beginning of the year balance x Double declining rate Year 1 depreciation = $75,000 x 10% = $7,500 Year 2 depreciation = ($75,000 $7,500) x 10% = $6,750 ...
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This note was uploaded on 03/30/2011 for the course ACC 305 taught by Professor Allison during the Spring '11 term at Western Intl..
- Spring '11