F3 - Depreciation Methods!

Question 1

Sum of the years digits method - Requires:

• Depreciation Base: (18,000)
• Useful Life: (4 years)
  ie: What is the asset’s carrying value at end of Y3?

Answer 1

Y1 depreciation expense:
Numerator: 4/4 years useful life left. Denominator: 10 years (4+3+2+1). Multiply by base…
4 / 10 * 18,000 = 7,200

Y2 depreciation expense:
Numerator: 3/4 years useful life left. Denominator: 10 years total (4+3+2+1). Multiply by base…
3 / 10 * 18,000 = 5,400

Y3 depreciation expense:
Numerator: 2/4 years useful life left. Denominator: 10 years total (4+3+2+1). Multiply by base…
2 / 10 * 18,000 = 3,600

Question 2

Double Declining Method:

• Depreciation Base: (80,000)
• Useful life: (4 years)
• Salvage Value: (8,000)

Answer 2

Y1 Depreciation Expense:
25% normal straight line… so 50% times carrying value: 0.5 * 80,000 = 40,000

Y2 Depreciation Expense:
25% would be normal straight line… so 50% times carrying value: 0.5 * 40,000 = 20,000

Y3 Depreciation Expense:
25% would be normal straight line… so 50% times carrying value: 0.5 * 20,000 = 10,000

Y4 Depreciation Expense: Remainder until you hit salvage value (10,000 CV until 8,000 SV … aka, 2,000 depreciation expense).

Question 3

What is the difference between group and composite depreciation?
What is one similarity that the two share?

Answer 3

• Group depreciation method is for groups of similar assets.
• Composite depreciation method is for a collection of dissimilar assets.
• Both group and composite depreciation are based on the straight-line depreciation method.