\[ \text { SL Depreciation: } D_{S L}=\frac{(B-S)}{N} \] DDB Depreciation:DDB t = N2 BV t−1 UOP Depreciation:D t =(B−S) Total Production Production at year t Combined Tax Rate=State Tax + Federal Tax(1−State Tax)Question 1-A factory purchased a new machine with an initial cost of$300,000. The machine has a useful life of 6 years. The salvage value is$60,000. (1.5 points) A) Calculate the depreciation and the book value for the first 3 years using Straight-Line Depreciation. B) Calculate the depreciation and the book value for the first 3 years using Double Decline Balance Depreciation.
Question
DDB Depreciation:DDB t = N2 BV t−1 UOP Depreciation:D t =(B−S) Total Production Production at year t Combined Tax Rate=State Tax + Federal Tax(1−State Tax)Question 1-A factory purchased a new machine with an initial cost of60,000. (1.5 points) A) Calculate the depreciation and the book value for the first 3 years using Straight-Line Depreciation. B) Calculate the depreciation and the book value for the first 3 years using Double Decline Balance Depreciation.
Solution
A) Straight-Line Depreciation:
The formula for Straight-Line Depreciation is D_{SL} = (B - S) / N
Where: B = Initial cost of the asset S = Salvage value of the asset N = Useful life of the asset
Substituting the given values into the formula:
D_{SL} = (300,000 - 60,000) / 6 = $40,000
This means the machine depreciates by $40,000 each year.
The book value of the machine at the end of each year is calculated by subtracting the accumulated depreciation from the initial cost.
Book Value at end of Year 1 = 300,000 - 40,000 = 220,000 Book Value at end of Year 3 = 220,000 - 40,000 = $180,000
B) Double Declining Balance Depreciation:
The formula for Double Declining Balance Depreciation is DDB_t = 2 * (B - Accumulated Depreciation) / N
For Year 1: DDB_1 = 2 * (300,000 - 0) / 6 = 200,000
For Year 2: DDB_2 = 2 * (300,000 - 100,000) / 6 = 133,333
For Year 3: DDB_3 = 2 * (300,000 - 166,667) / 6 = 88,889
Please note that the Double Declining Balance method results in higher depreciation in the earlier years of an asset's life.
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