Purdue Straight Line Depreciation & Double Declining Balance Method Paper

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Business Finance

Description

Scenario: Sanders Construction Co. specializes in building replicas of historic houses. Brett Sanders, president of Sanders Construction, is considering the purchase of various items of equipment on July 1, 2014 for $300,000. The equipment would have a useful life of 5 years and no residual value. Brett is considering depreciating the equipment by the straight-line method or the double declining balance method.

Answer the following questions:

Calculate the depreciation for the first year using the straight-line method and the Double declining balance method, show your work.

In a short paragraph, explain the straight line depreciation method and the Double declining balance method.

  1. In your opinion, which method would be better for the company to use, why? Explain your answer.
  2. Make sure your document includes:
  3. • Your Name

• Date

• Course Name and Section Number

• Unit Number

• Assignment Name

• Page Numbers

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Running head: ACCOUNTING ASSIGNMENT: DEPRECIATION MODELS

Name
Date
Course Name and Section Number
Unit Number
Accounting Assignment: Depreciation Models

1

ACCOUNTING ASSIGNMENT: DEPRECIATION MODELS

2

Accounting Assignment: Depreciation Models
The current analysis illustrates how the depreciation model used affects how the company
reflects the value of the inventoried material. It describes the use of the straight-line method and
the double decline balanced method for the estimation of the first-year depreciation of a product
costing $300,000 that has five years lifetime. This product does not have any salvage value.
Calculations
Using the straight-line depreciation method
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑎𝑚𝑜𝑢𝑛𝑡 =

𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑣𝑎𝑙𝑢𝑒 300000 − 0
=
𝐿𝑖𝑓𝑒𝑡𝑖𝑚𝑒
5

= $60,000
𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 𝑓𝑖𝑟𝑠𝑡 𝑦𝑒𝑎𝑟 = 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 − 𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
= 300000 − 60000 = $240,000
Using the double decline balance depreciation method
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 =

1
1
∗ 2 = ∗ 2 = 0.40
𝐿𝑖𝑓𝑒𝑡𝑖𝑚𝑒
5

𝐴𝑛𝑛𝑢𝑎𝑙 𝑑�...


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