Need help computing depreciation?

Question

On April 1, 2007 a company purchases machinery for $280,000. The machine is expected to last for 5 years and have a salvage value of $40,000.

Compute depreciation expense for year 2008 using straight line and double-declining-balance methods of depreciation.

Answer 1

And this is a science question?

Straight line method: Yearly depreciation expense = (280 - 40)/5 = $48,000

Double declining balance method: yearly straight line method depreciation expense = 48,000. which is 20% of the net value (280 - 40). We double that percentage to 40% which will be multiplied by each year's remaining balance unless it is lower than 48,000 at which time we use straight line method; so in the first year (April 2007 to April 2008), the depreciation expense is 40% * (280 - 40) = $96,000. The remaining balance is 240 - 96 = 144. For the second year (from April 2008 to April 2009) the depreciation expense is 40% * 144 = $57,600 (which is still larger than 48,000).

Now, I don't know what do you mean by year 2008. If you mean by that the period from April 2008 to April 2009 than the answer is 57,600 as shown above.

If rather you mean from January to December 2008, then you should account for monthly depreciation expenses from January to March using first year depreciation (that is 96,000/12 * 3) and monthly depreciation expenses from April to December using second year number (that is 57,600/12 * 9). In this case Depreciation = 96,000/12 * 3 + 57,600/12 * 9 = 24 + 43.2 = $67,200