Assignment Exercise: Inventory and Depreciation Concepts
Assume that an organization purchased two pieces of equipment on April 1st (the first day of its fiscal year), as follows:
(1) One laboratory equipment that cost $530,000 and has an expected life of 8 years. The salvage value is 10 percent of the cost. No equipment was traded in on this purchase.
(2) One radiology equipment that cost $675,000 and has an expected life of 6 years. The salvage value is 15 percent of the cost. No equipment was traded in on this purchase.
Your Tasks
For each piece of equipment:
1. Compute the straight-line depreciation for:
a) The lab equipment
b) The radiology equipment
2. Compute the double declining balance depreciation for:
a) The lab equipment
b) The radiology equipment
Does anyone know the steps, into solution?
I tried solving it like does percentage come first or after?
To compute the straight-line depreciation and double declining balance depreciation for each piece of equipment, you need to follow a few steps. Here's how you can calculate the depreciation for each type of equipment:
1. Straight-line Depreciation:
- Determine the depreciable cost, which is the original cost minus the salvage value.
- Divide the depreciable cost by the expected useful life to calculate the annual straight-line depreciation expense.
a) Straight-line Depreciation for the Laboratory Equipment:
- Cost = $530,000
- Salvage Value = 10% of the cost = $530,000 * 0.10 = $53,000
- Depreciable Cost = Cost - Salvage Value = $530,000 - $53,000 = $477,000
- Useful Life = 8 years
- Straight-line Depreciation Expense = Depreciable Cost / Useful Life = $477,000 / 8 = $59,625 per year
b) Straight-line Depreciation for the Radiology Equipment:
- Cost = $675,000
- Salvage Value = 15% of the cost = $675,000 * 0.15 = $101,250
- Depreciable Cost = Cost - Salvage Value = $675,000 - $101,250 = $573,750
- Useful Life = 6 years
- Straight-line Depreciation Expense = Depreciable Cost / Useful Life = $573,750 / 6 = $95,625 per year
2. Double Declining Balance Depreciation:
- Determine the depreciation rate, which is calculated as 2 divided by the useful life.
- Multiply the depreciation rate by the beginning book value (cost minus accumulated depreciation) to calculate the annual double declining balance depreciation expense.
a) Double Declining Balance Depreciation for the Laboratory Equipment:
- Cost = $530,000
- Depreciable Cost = Cost - Salvage Value = $530,000 - $53,000 = $477,000
- Useful Life = 8 years
- Depreciation Rate = 2 / Useful Life = 2 / 8 = 0.25 (or 25%)
- Beginning Book Value (Year 1) = Cost
- Double Declining Balance Depreciation Expense (Year 1) = Beginning Book Value (Year 1) * Depreciation Rate = $530,000 * 0.25 = $132,500
- Repeat the calculation for subsequent years, adjusting the beginning book value each year by deducting the accumulated depreciation.
b) Double Declining Balance Depreciation for the Radiology Equipment:
- Cost = $675,000
- Depreciable Cost = Cost - Salvage Value = $675,000 - $101,250 = $573,750
- Useful Life = 6 years
- Depreciation Rate = 2 / Useful Life = 2 / 6 = 1/3 (or 33.33%)
- Beginning Book Value (Year 1) = Cost
- Double Declining Balance Depreciation Expense (Year 1) = Beginning Book Value (Year 1) * Depreciation Rate = $675,000 * 1/3 = $225,000
- Repeat the calculation for subsequent years, adjusting the beginning book value each year by deducting the accumulated depreciation.
By following these steps, you will be able to calculate the straight-line depreciation and double declining balance depreciation for the laboratory equipment and radiology equipment.