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A Kubota tractor acquired on January 8 at a cost of $72,000 has an estimated useful life of 10 years
A Kubota tractor acquired on January 8 at a cost of $72,000 has an estimated useful life of 10 years. Assuming that it will have no residual value.
a) Determine the depreciation for each of the first two years by the straight-line method.
b) Determine the depreciation for each of the first two years by the double-declining-balance method. Do not round the double-declining balance rate. If required, round your final answers to the nearest dollar.
Expert Solution
a.)
Depreciation by straight line method:
Cost= 72000
Residual value= 0
Estimated useful life= 10 years
Annual Depreciation = (Cost - Residual value)/ Estimated useful life
= (72000- 0)/ 10
= 7200
So, the depreciation for both year is $7200
b.)
Depreciation by Double declining method:
Straight line percentage= 7200/ 72000= 10%
Double declining balance rate= 10%* 2= 20%
Depreciation expenses for year 1= 72000* 20%= 14400
Depreciation for Year 2= Residual value* Double declining rate
= (72000- 14400)* 20%
= 11520
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