Balls and Bats, Inc
Essay by msmith • July 3, 2016 • Case Study • 665 Words (3 Pages) • 1,281 Views
Balls and Bats, Inc.
Marisol Smith
AIU
06/26/2016
Draft
Depreciation is an organized and balanced method of allocating the cost of physical possessions throughout the lifetime of the properties or assets. Depreciation is a course of distribution. Some of the methods utilize on the depreciation are: The Straight Line Depreciation method, declining balance of Depreciation and/or Double Declining Balance of Depreciation.
Balls and Bats, Inc.
Balls and Bats, Inc. purchased equipment on January 1, 2005, at a cost of $100,000. The estimated useful life is 4 years with a salvage value of $10,000.
Prepare two different depreciation schedules for the equipment - one using the double-declining balance method, and the other using the straight-line method. (Round to the nearest dollar).
- Prepare two different depreciation schedules for the equipment - one using the double-declining balance method, and the other using the straight-line method. (Round to the nearest dollar).
In order to get the Double Declining balance depreciation it is needed to use the straight line depreciation method.
Computing the cost as of $100,000.00 with a salvage value of $10,000.00 and useful life 4 years.
To gather the annually depreciation the calculation is as follow: base- salvage value
10,000.00 – 10,000.00= $90,000.00 total amount depreciated
Then the total amount depreciated will be divided by the useful life years
$90,000.00/4= $22,500.00
Annually depreciation is $22,500.00
Now to get the straight line depreciation it needs to divide $22,500 by the total depreciation
22,500/90,000=0.25%
The straight line depreciation of $22,500 is 0.25%
Year | Calculation | Depreciation Expense | Accumulated Depreciation | Net Book Value |
01/01/05 | $100,000.00 | |||
01/01/06 | 100,000-10,000/4 | $22,500.00 | $22,500.00 | $77,500.00 |
01/01/07 | 100,000-10,000/4 | $22,500.00 | $22,500.00 | $55,000,00 |
01/01/08 | 100,000-10,000/4 | $22,500.00 | $22,500.00 | $32,500.00 |
01/01/09 | 100,000-10,000/4 | $22,500.00 | $22,500.00 | $10,000.00 |
Now to get to the double declining depreciation we will do the following calculation:
Double Declining Balance Depreciation Method Formula
Depreciation Base * (2 * 100% / Useful Life of Asset in Years)
100,000 X 2X100%/4=50,000.00 2005- First year
50,000X2x100%/4= $25,000 2006- second year
25,000X2X100%/4=$12,500 2007 -third year
12,500X2X100%/4=$6,250 2008- fourth year
The Double declining depreciation is 50%
Year | Calculation | Depreciation Expense | Accumulated Depreciation | Net Book Value |
01/01/05 | $100,000.00 | |||
01/01/06 | 50% X 100000 | $50,000.00 | $50,000.00 | $50,000.00 |
01/01/07 | 50% X 50000 | $25,000.00 | $75,000.00 | $25,000.00 |
01/01/08 | 50% X 25000 | $12,500.00 | $87,500.00 | $12,500.00 |
01/01/09 | 50% X 12500 | $6,250.00 | $93,750.00 | $6,250.00 |
- Determine which method would result in the greatest net income for the year ending December 31, 2005.
Taking under consideration the results of the Straight Line Depreciation Method and the Double Declining Depreciation Method that the most effective method to used it will be the Straight Line Method due to the fact that in this case the Savage Value is under the Base Book Value and it should not be lower instead can be higher or equal.
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