Depreciation methods task 7

Rick Steijns

Acquisition costs: € 2,045,000.00

Residual value € 100,000.00
Lifetime in years 10
depreciation rate 10%
DBB rate 20%
Total units of books produced 700000

Straight line method

formula: cost - residual value
useful life in years

Units of production method

formula: cost - residual value
Units produced in lifetime

Double declining balance method

first: Calculate depreciation rate (1/lifetime in years)

Second: Calculate DBB rate (2x depreciation rate)

Third: Multiply the beginning asset book value with the DBB rate

Year Asset cost

1/1/2011 € 2,045,000.00
1/1/2012
1/1/2013
1/1/2014
1/1/2015
1/1/2016
1/1/2017
1/1/2018
1/1/2019
1/1/2020
1/1/2021

GAIN OR LOSS ON ASSET SALE Straight line

Book value dec 31 2014 € 1,461,500.00
Disposal value € 1,100,000.00
Gain or loss € -361,500.00

Straight line journal entry

dec 31 2014 Cash
Accumulated depreciation
Loss on sale of PPE
Equipment

Units of production journal entry

dec 31 2014 Cash
Accumulated depreciation
Loss on sale of PPE
Equipment

Double declining journal entry

dec 31 2014 Cash
Accumulated depreciation
 Gain on sale of PPE
Equipment

CHANGE ON ESTIMATE 10 years

€ 194,500.00 per year
Accumulated depreciation jan. 2013 € 389,000.00
Difference (shortage) € 32,111.11
Recover in year 3 € 242,666.67

IMPAIRMENT LOSS
Dec 2013 is 2 years accumulated depreciation

Acquisition costs € 2,045,000.00

Accumulated depreciation € 389,000.00
Book value € 1,656,000.00
recoverable amount € 1,000,000.00
Impairment loss € 656,000.00
 2045000 -100000
10

2045000 -100000
700000

10%

20%

the DBB rate

Depreciation for the year

DBB rate Asset carrying amountDepreciation expense
20%
20% € 2,045,000.00 € 409,000.00
20% € 1,636,000.00 € 327,200.00
20% € 1,308,800.00 € 261,760.00
20% € 1,047,040.00 € 209,408.00
20% € 837,632.00 € 167,526.40
20% € 670,105.60 € 134,021.12
20% € 536,084.48 € 107,216.90
20% € 428,867.58 € 85,773.52
20% € 343,094.07 € 68,618.81
20% € 274,475.25 € 174,475.25

Units of productionDouble declining

€ 1,378,142.86 € 1,047,040.00
€ 1,100,000.00 € 1,100,000.00
€ -278,142.86 € 52,960.00

€ 1,100,000.00
€ 583,500.00
€ 361,500.00
€ 2,045,000.00

€ 1,100,000.00
€ 666,857.14
€ 278,142.86
€ 2,045,000.00

€ 1,100,000.00
€ 997,960.00
 € 52,960.00
€ 2,045,000.00

9 years
€ 210,555.56
€ 421,111.11

Journal entry dec 31 2014 Impairment loss

Accumulated depreciation and impairment loss
 € 194,500.00 per year
=

€ 2.779 per unit (book)

=

Accumulated Depreciati Asset carrying amount

€ 409,000.00 € 1,636,000.00
€ 327,200.00 € 1,308,800.00
€ 261,760.00 € 1,047,040.00
€ 209,408.00 € 837,632.00
€ 167,526.40 € 670,105.60
€ 134,021.12 € 536,084.48
€ 107,216.90 € 428,867.58
€ 85,773.52 € 343,094.07
€ 68,618.81 € 274,475.25
€ 174,475.25 € 100,000.00
€ 656,000.00
€ 656,000.00
€ 2.779
 Depreciation for the year
Year Straight line Units of production Double declining
1 € 194,500.00 € 222,285.71 € 409,000.00
2 € 194,500.00 € 222,285.71 € 327,200.00
3 € 194,500.00 € 222,285.71 € 261,760.00
4 € 194,500.00 € 222,285.71 € 209,408.00
5 € 194,500.00 € 222,285.71 € 167,526.40
6 € 194,500.00 € 166,714.29 € 134,021.12
7 € 194,500.00 € 166,714.29 € 107,216.90
8 € 194,500.00 € 166,714.29 € 85,773.52
9 € 194,500.00 € 166,714.29 € 68,618.81
10 € 194,500.00 € 166,714.29 € 174,475.25
Total € 1,945,000.00 € 1,945,000.00 € 1,945,000.00