Aquisitions And Payment
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Two methods of depreciation are straight-line and double-declining depreciation. The straight-line method depreciates assets evenly over their useful life. Double-declining depreciation is an accelerated form of depreciation and results in depreciating assets more rapidly. Balls and Bats would like to see which method will result in the greatest net income as well as how each would affect taxes.
Straight-line Method of Depreciation
Total cost of acquisition = $100,000 100,000 – 10,000 = 90,000
Salvage value = $10,000 90,000/4 = 22,500
Useful life = 4 years
Balances at Year-end 2005-2008
2008
Cost of equipment
100,000
100,000
100,000
100,000
Accumulated depreciation
22,500
45,000
67,500
90,000
Net book value
77,500
55,000
32,500
10,000
As one can see the ending balance at year 4 equals the salvage value of $10,000.
Double-declining Method of Depreciation
Total cost of acquisition = $100,000 2(100%/n)
Straight-line rate = $100,000/4 = $25,000 2(100%/4) = 50%
DDB rate = 2 ($25,000) = $50,000 DDB depreciation = DDB rate (beginning
Net book value)
Balances at Year-end 2005-2008
Annual Depreciation
Book Value
At Acquisition
100,000
50,000
50,000
25,000
25,000
12,500
12,500
2,500
10,000
Total
90,000
Using