DECLINING-BALANCE METHOD OF DEPRECIATION Plant asset: Computer Original cost: $2,000.00 Depreciation method: Declining balance Estimated salvage value: $175.00 Estimated useful life: 5 years Beginning Declining- Annual Ending Year Book Value Balance Rate Depreciation Book Value 1 $2,000.00 40% $ 800.00 $1,200.00 2 1,200.00 40% 480.00 720.00 3 720.00 40% 288.00 432.00 4 432.00 40% 172.80 259.20 5 259.20 40% 84.20 175.00 1. Calculate the declining-balance rate. Total Depreciation Expense 100%  Estimated Useful Life (years)  5 = Straight-Line Rate 20%  Double the Rate  2 = Declining-Balance Rate 40% 1 2 2. Calculate the annual depreciation for year 3. Beginning Book Value $720  Depreciation Rate  40% = Annual Depreciation Expense $288 Total ———— Depreciation — $1,825.00 — Lesson 8-4, page 234

SUM-OF-THE-YEARS-DIGITS METHOD OF DEPRECIATION Plant asset: Computer Original cost: $2,000.00 Depreciation method: Sum-of-the-years-digits Estimated salvage value: $175.00 Estimated useful life: 5 years Beginning Total Annual Ending Year Book Value Fraction Depreciation Depreciation Book Value 1. Calculate the fraction. Years’ Digits Fraction 1 5/15 2 4/15 3 3/15 4 2/15 5 1/15 Total 15 1 1 $2,000.00 5/15 $1,825.00 $ 608.33 $1,391.67 2 1,391.67 4/15 $1,825.00 486.67 905.00 3 905.00 3/15 $1,825.00 365.00 540.00 4 540.00 2/15 $1,825.00 243.33 296.67 5 296.67 1/15 $1,825.00 121.67 175.00 2. Calculate the annual depreciation for year 1. Original Cost $2,000.00 Estimated Salvage Value – 175.00 Estimated Total Depreciation $1,825.00 Year’s Fraction  5/15 Annual Depreciation $608.33 2 Total — ——— Depreciation $1,825.00 Lesson 8-4, page 235

COMPARISON OF THREE METHODS OF DEPRECIATION Plant asset: Computer Original cost: $2,000.00 Depreciation method: Comparison Estimated salvage value: $175.00 Estimated useful life: 5 years Straight-Line Double Declining-Balance Sum-of-the-Years-Digits Year Method Method Method 1 $ 365.00 $ 800.00 $ 608.33 2 365.00 480.00 486.67 3 365.00 288.00 365.00 4 365.00 84.20 243.33 5 365.00 121.67 Total Depreciation $1,825.00 $1825.00 $1,825.00 Lesson 8-4, page 236

PRODUCTION-UNIT METHOD OF DEPRECIATION Plant asset: Truck Depreciation method: Production-unit Estimated total depreciation: $16,200.00 Original cost: $18,200.00 Estimated useful life: 90,000 miles Estimated salvage value: $2,000.00 Depreciation rate: $0.18 per mile driven Beginning Miles Annual Ending Year Book Value Driven Depreciation Book Value 1. Calculate the depreciation rate. Original Cost $18,200 – Estimated Salvage Value – 2,000 = Est. Total Depreciation Expense $16,200  Estimated Useful Life (miles)  90,000 = Depreciation Rate $0.18/mile 1 2 2. Calculate annual depreciation for year 1. Total Miles Driven 9,000  Depreciation Rate  $0.18 = Annual Depreciation Exp. $1,620.00 1 $18,200.00 9,000 $ 1,620.00 $ 16,580.00 2 16,580.00 23,000 4,140.00 12,440.00 3 12,440.00 25,000 4,500.00 7,940.00 4 7,940.00 22,000 3,960.00 3,980.20 5 3,980.20 8,000 1,440.00 2,540.00 Totals 87,000 $15,600.00 Lesson 8-4, page 237

    CALCULATING DEPRECIATION EXPENSE FOR INCOME TAX PURPOSES Plant asset: Printer Original cost: $2,000.00 Depreciation method: MACRS Property class: 5 year Year Depreciation Rate Annual Depreciation 1 20.00% $400.00 2 32.00% 640.00 3 19.20% 384.00 4 11.52% 230.40 5 11.52% 230.40 6 5.76% 115.20 Totals 100.00% $2,000.00     Lesson 8-4, page 238

TERMS REVIEW declining-balance method of depreciation sum-of-the-years-digits method of depreciation production-unit method of depreciation Modified Accelerated Cost Recovery System depletion Lesson 8-4, page 240