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Aquisitions And Payment

Essay by   •  May 3, 2011  •  588 Words (3 Pages)  •  1,018 Views

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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

2005 2006 2007 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

2005 50,000 50,000

2006 25,000 25,000

2007 12,500 12,500

2008 2,500 10,000

Total 90,000

Using

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