cost of rental equipment is $486,902, accum. amortization is $418,713, net book value for 2006 is $68,169 and 2005 is $74,018. Amortization of rental equipment for the year amounted to $22,205 (2005 - $14,379). i need to calculate the cost for year 2007, the accum. amort. for 2007 and net book value for 2007.
The declining balance rate is 30%. Any additions to rental equipment in the current year are amortized at one-half of the above rates.
To calculate the cost for the year 2007, you need to consider the additions to rental equipment and the amortization rate.
1. Determine the annual depreciation rate:
The declining balance rate is given as 30%. To find the straight-line depreciation rate, you divide the declining balance rate by two, which gives you 15%.
2. Calculate the additional rental equipment and its amortization:
If there were any additions to rental equipment in 2007, you would amortize them at half the rate used for existing equipment (one-half of 15%).
3. Calculate the amortization for the existing rental equipment in 2007:
To calculate the amortization for the existing rental equipment, you need to subtract the amortization of 2006 from the net book value of 2006.
4. Calculate the cost for the year 2007:
Add the amortization for the existing equipment and the additional equipment to the net book value of 2006.
5. Calculate the accumulated amortization for 2007:
Add the amortization of the additional equipment and the amortization for existing equipment to the accumulated amortization of 2006.
6. Calculate the net book value for 2007:
Subtract the accumulated amortization for 2007 from the cost for 2007.
Let's follow these steps to calculate each value:
Step 1: Calculate the annual depreciation rate:
Declining balance rate = 30%
Straight-line depreciation rate = 30%/2 = 15%
Step 2: Calculate the additional rental equipment and its amortization:
There is no information provided about the additional rental equipment, so we assume there are no additions in 2007.
Step 3: Calculate the amortization for the existing rental equipment in 2007:
Amortization for 2006 = $22,205
Net book value for 2006 = $68,169
Amortization for existing rental equipment in 2007 = Net book value for 2006 - Amortization for 2006
= $68,169 - $22,205
= $45,964
Step 4: Calculate the cost for the year 2007:
Cost for 2007 = Net book value for 2006 + Amortization for existing rental equipment in 2007
= $68,169 + $45,964
= $114,133
The cost for the year 2007 is $114,133.
Step 5: Calculate the accumulated amortization for 2007:
Accumulated amortization for 2006 = $418,713
Accumulated amortization for existing rental equipment in 2007 = Accumulated amortization for 2006 + Amortization for existing rental equipment in 2007
= $418,713 + $45,964
= $464,677
Step 6: Calculate the net book value for 2007:
Net book value for 2007 = Cost for 2007 - Accumulated amortization for 2007
= $114,133 - $464,677
= -$350,544
The net book value for 2007 is -$350,544. Note that a negative value indicates that the accumulated amortization equals or exceeds the cost, resulting in a net loss in value.