Aquisitions And Payment
Essay by 24 • May 3, 2011 • 588 Words (3 Pages) • 1,094 Views
Two methods of depreciation are straight-line and double-declining depreciation. The straight-line method depreciates assets evenly over their useful life. Double-declining depreciation is an accelerated form of depreciation and results in depreciating assets more rapidly. Balls and Bats would like to see which method will result in the greatest net income as well as how each would affect taxes.
Straight-line Method of Depreciation
Total cost of acquisition = $100,000 100,000 - 10,000 = 90,000
Salvage value = $10,000 90,000/4 = 22,500
Useful life = 4 years
Balances at Year-end 2005-2008
2005 2006 2007 2008
Cost of equipment 100,000 100,000 100,000 100,000
Accumulated depreciation 22,500 45,000 67,500 90,000
Net book value 77,500 55,000 32,500 10,000
As one can see the ending balance at year 4 equals the salvage value of $10,000.
Double-declining Method of Depreciation
Total cost of acquisition = $100,000 2(100%/n)
Straight-line rate = $100,000/4 = $25,000 2(100%/4) = 50%
DDB rate = 2 ($25,000) = $50,000 DDB depreciation = DDB rate (beginning
Net book value)
Balances at Year-end 2005-2008
Annual Depreciation Book Value
At Acquisition 100,000
2005 50,000 50,000
2006 25,000 25,000
2007 12,500 12,500
2008 2,500 10,000
Total 90,000
Using
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