School of International Business Intermediate Accounting 2
Spring 2022-2023 Tutorial 1
(a) Straight-line method depreciation for each of Years 1 through 3 =
$518,000 – $50,000
= $39,000
12
12 X 13
(b) Sum-of-the-Years’-Digits = = 78
2
12/78 X ($518,000 – $50,000) = $72,000 depreciation Year 1
11/78 X ($518,000 – $50,000) = $66,000 depreciation Year 2
10/78 X ($518,000 – $50,000) = $60,000 depreciation Year 3
(c) Double-Declining-Balance method 100%
X 2 = 16.67%
depreciation rate. 12
$518,000 X 16.67% = $86,351 depreciation Year 1
($518,000 – $86,351) X 16.67% = $71,956 depreciation Year 2
($518,000 – $86,351 – $71,956) X 16.67% = $59,961 depreciation Year 3
School of International Business Intermediate Accounting 2
Spring 2022-2023 Tutorial 1
School of International Business Intermediate Accounting 2
Spring 2022-2023 Tutorial 1
(a) If there is any residual value and the amount is unknown (as is the case
here), the cost would have to be determined by looking at the data for
the double-declining balance method.
100%
= 20%; 20% X 2 = 40%
5
Cost X 40% = $20,000
` $20,000 ÷ .40 = $50,000 Cost of asset
(b) $50,000 cost [from (a)] – $45,000 total depreciation = $5,000
residual value.
(c) The highest charge to income for Year 1 will be yielded by the
double-declining-balance method.
(d) The highest charge to income for Year 4 will be yielded by the
straight-line method.
(e) The method that produces the highest book value at the end
of Year 3 would be the method that yields the lowest
accumulated depreciation at the end of Year 3, which is the
straight-line method.
Computations:
St.-line = $50,000 – ($9,000 + $9,000 + $9,000) = $23,000 book value,
end of Year 3.
S.Y.D. = $50,000 – ($15,000 + $12,000 + $9,000) = $14,000 book value,
end of Year 3.
D.D.B. = $50,000 – ($20,000 + $12,000 + $7,200) = $10,800 book value,
end of Year 3.
School of International Business Intermediate Accounting 2
Spring 2022-2023 Tutorial 1
(f) The method that will yield the highest gain (or lowest loss) if the asset
is sold at the end of Year 3 is the method which will yield the lowest
book value at the end of Year 3, which is the double-declining balance
method in this case.
