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Assignment_6_-_Lecture_notes

# First year 1500 3months12months 375 table year cost

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First year: \$1,500 * 3months/12months = 375 Table Year Cost Depreciation Expense Accumulated Depreciation Book Value 1 5,000 375 375 4,625 2 5,000 1,500 1,875 3,125 3 5,000 1,500 3,375 1,625 4 5,000 1,125 4,500 500** B. Double-Declining Balance Shows more depreciation in the early years More accurately reflects the wearing out of vehicles, equipment, etc. Formula: Book value / estimated life * 2 = Depreciation expense for year Example 1 (full year): Cost of Fixed Asset: \$5,000 Residual value: \$500 Estimated life: 3 years Solution: Table: Year Cost Depreciation Expense Accumulated Depreciation Book Value 1 5,000 3,333 3,333 1,667 2 5,000 1,111 4,444 556 3 5,000 56 4,500 500** **Final book value is the same as the residual value. Never depreciate passed residual value

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Example 2 (partial year): Cost of Fixed Asset: \$5,000 Residual value: \$500 Estimated life: 3 years Placed in service: October 1 st Solution: First year: 5,000 / 3 * 2 = \$3,333 whole year * 3/12 = \$833 Table Year Cost Depreciation Expense Accumulated Depreciation Book Value 1 5,000 833 833 4,167 2 5,000 2,778 3,611 1,389 3 5,000 889 4,500 500** B. Unit-of-Production Depreciation based on number of units produced. Good for manufacturing equipment.
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