Reference no: EM13962379

Small Business Accounting

Write a 3-5 page paper using the MLA style. The paper must be at least three pages in length. This does not include the Works Cited page or the cover page. MLA format must be used. Pay attention to your intext citations and works cited page. If the paper is not at least three written pages in length and/or in MLA format, the paper will not receive a passing grade regardless of the content.

Use at least three sources.

Describe the different effects of the depreciation methods used in Appendix A of the book. Use the example I have given to compare the different methods.

Equipment

cost 15,000

salvage value 5000

estimated life 5 years

estimated units 20,000

units produced:

year 1=9000

year 2=0

year 3=5000

year 4=3500

year 5=2500

There is a book error on page 388 Appendix A.

Here is the correct way to calculate depreciation under the double declining balance mehtod for an asset that was purchased for $15,000, $5,000 salvage value and 5 years of useful life:

Double Declining Balance Depreciation Schedule

Cost: $15,000.00, Salvage: $5,000.00, Life: 5 years , First Year: 12 months

Year

Book Value

Year Start Depreciation

Percent Depreciation

Expense Accumulated

Depreciation Book Value

Year End

1 $15,000 40.00% $6,000 $6,000 $9,000

2 $9,000 40.00% $3,600 $9,600 $5,400

3 $5,400 7.41% $400 $10,000 $5,000

Double Declining Balance Depreciation Formulas

The double declining balance method is an accelerated depreciation method. Using this method the Book Value at the beginning of each period is multiplied by a fixed Depreciation Rate which is 200% of the straight line depreciation rate, or a factor of 2. To calculate depreciation based on a different factor use our Declining Balance Calculator.

The double declining balance calculation does not consider the salvage value in the depreciation of each period however, if the book value will fall below the salvage value, the last period might be adjusted so that it ends at the salvage value. When double declining balance method does not fully depreciate an asset by the end of its life, variable declining balance method might be used instead.

Straight-Line Depreciation Percent = 100% / Useful Life

Depreciation Rate = 2 x Straight-Line Depreciation Percent

Depreciation for a Period = Depreciation Rate x Book Value at Beginning of the Period

If the first year is not a full 12 months and is a number M months, the first and last years will be calculated

First Year Depreciation Rate = M/12 x Depreciation Rate

Last Year Depreciation Rate = (12-M)/12 x Depreciation Rate

Double Declining Balance Depreciation Example

An asset for a business cost $1,750,000, will have a life of 10 years and the salvage value at the end of 10 years will be $10,000. You calculate 200% of the straight-line depreciation, or a factor of 2, and multiply that value by the book value at the beginning of the period to find the depreciation expense for that period.

Straight-Line Depreciation Percent = 100% / 10 years = 10% / year

Depreciation Rate = 2 x 10% = 20% / year

Depreciation for a Period = 20% x Book Value at Beginning of the Period

Depreciation for Period 1 = 20% x $1,750,000 = $350,000

For Periods 2 and greater, depreciation is 20% x ($1,750,000 - Accumulated Depreciation )

Depreciation for Period 2 = 20% x ($1,750,000 - $350,000 ) = $280,000

Depreciation for Period 3 = 20% x ($1,750,000 - $630,000 ) = $224,000

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