Memorandum
To:
From:
Subject: Depreciation Value of your Special Purpose Machine
Date:

Congratulations on your purchase of this special purpose machine. With every purchase of a new machinery comes the depreciation value of the machine. In order to report the value of this machine, we first must figure out the total amount paid for your machine. It says here you purchased the machine for an invoice price of $1,200,000 and the freight cost was $6000 and the cost for installation was $64000. We would add all that up and get a total machine cost of $1,270,000. There are 3 types of depreciation methods we can use to figure out the annual depreciation value of your machine: Straight Line Method, Units of productions Method, and Double Declining Method. The Straight Line Method is plain and simple. This will tell us what to report at the end of every year for the depreciation value of your machine. First we would take the cost of the machine minus the salvage value divided by the useful life of the machine. I believe the salvage value would be the use of the machine in that year. For example: the total cost of machine is 1270000-200000/5=214000: 200000 would be the salvage life and 5 would be the useful life of the machine and 214000 would be our depreciation value for the year. So after the first year of use the book value of the machine would be 1270000-214000=1056000. Every year we would subtract 214000 from the previous book value. The Units of Productions Method is a little more complicated. This will tell us the estimate depreciation value of the machine. First we would take the cost of the machine minus estimated salvage value divided by the predicted units of production that your machine would produce and we would get a cost per unit (depreciable). After we get the cost per unit (CPU), we would multiply it by the units produced in the period and we will get the depreciation for the period, also in the last year of the useful life of the machinery...

...DepreciationMethodsDepreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.
Factors Involved in the Depreciation Process
1. What depreciable base is to be used for the asset?
2. What is the asset’s useful life?
3. What method of cost apportionment is best for the asset?
Depreciable Base for the Asset
The base established for depreciation is a function of two factors: the original cost, and the salvage or disposal value. Salvage value is the estimated amount that the company will receive when it sell the asset or removes it from service. It is the amount to which the company writes down or depreciates the asset during its useful life.
Example:
An asset is purchased for $10,000. The company believes that it has a salvage value of $1,000.
Original cost $10,000
Less: Salvage value 1,000
Depreciation base $ 9,000
Methods of Depreciation
The accounting profession requires that the depreciationmethod employed be “systematic and rational.” The following are examples of depreciationmethods:
1. Activity method (units of use or production)
2. Straight-line method
3. Decreasing charge...

...Depending on the depreciationmethod that they choice to use, it will reflect the estimate. As noted in the book, “when a company changes the way it depreciates an asset in midstream, the change would be made to reflect a change in, either an estimated future benefit from the asset, the patterns of receiving those benefits, or the company’s knowledge about those benefits” (McGraw-Hill Companies, 2010). When this company changes there previous estimate, they don’t have to amend their prior financial statements because they are using the prospectively approach. The company would just show the change on the financial statements from then on.
As noted in the book and also under the new pronouncements of FASB, changes in accounting estimates are accounted for prospectively. Any change in depreciationmethod, the company in situation 1 must give an explanation for the change in principle as preferable to the previous method. These changes will affect the balance sheet and the income statement in the current period and in the future periods. A disclosure note should be added to the financial statements to show the change in accounting estimates. The “disclosure note should describe the effect of a change in estimates on income before extraordinary items, net income and related per share for the current period” (McGraw-Hill Companies, 2010).
Situation II.
In this situation Gary Company has...

...DepreciationEssay
A method of accelerated depreciation, in which double the straight-line depreciation amount is taken the first year and then that same percentage, is applied to the un-depreciated amount in subsequent years is called double-declining-balance-method.
Depreciationmethods that provide a higher depreciation charge in the first year of an asset’s life and gradually decreasing charges in subsequent years are called “accelerated depreciationmethods”. This may be a more realistic reflection of an asset’s actual expected benefit from the use of the asset, which many assets are most useful when they are new. One popular accelerated method is the double-declining-balance-method. Under this method the book value is multiplied by a fixed rate and is the most common rate which is use.
When using the double-declining-balance-method the salvage value is not considered in determining the annual depreciation but the book value of the asset being depreciated is never brought below its salvage value, regardless of the method used. The process continues until the salvage value or the end of the asset’s useful life is reached. In the last year of depreciation a subtraction might be needed in...

...assume all allowances apply to trade receivables]
11 What per cent of Gross Trade Accounts Receivable is uncollectable at end of 2007? _____________( x.xx%)
12 What was the average price paid for EK’s issued common stock as of Dec 31, 2007? _____________ ($ xx.xx)
R.E.C., Inc. (Text example)
13 Had Ending Inventory been completely valued at FIFO, what would Cost of
Goods sold have been for FY 2010? __SKIP____
OTHER:
Brown Co. purchased equipment on January 1 last year (Year 1) for $225,000. Management
estimates that the equipment will have a useful life of five years and no salvage value. The depreciation expense
recorded for tax purposes will be $64,000 this year (Year 2). The company uses the straight-line method of
depreciation for reporting purposes. The tax rate is 30%.
14. What is the reported net book value of the equipment on the B/S at the end of Year 2? ____________
15. Will a deferred tax asset or liability be recorded for Year 2? (circle one) Asset Liability
16. How much will be added in Year 2 to the deferred tax account due to timing difference? ____________
Name:______________
last
17 For P1.17 Biolase (p 29) for FY 2007 indicates following amounts in millions:
Revenues 66.9
Cost of Goods Sold ____
Gross Profit ____
Operating...

...Differentiating DepreciationMethods
Straight-line method of depreciation is where the depreciation is charged as long as you have an asset. However, an accelerated method of depreciation is where the depreciation that you have charged the amount will decline over a period of time. In straight-line method in order for you to get the depreciation amount the asset is subtracted from its cost. In the mean time, accelerated method is charged in the beginning of the
life time but in the end it is charged less. The formula that is used for straight-line method of depreciation is depreciation equal to cost minus salvage value over life in number of periods. In accelerated method the formula for declining balance is depreciation equal depreciation rate time book value of asset. Then the depreciation rate equal accelerator time straight-line rate.
Companies use different depreciationmethods for financial reporting because they have to follow rules relating to taxes when reporting tax depreciation. When they used tax depreciation on accelerated method is because of the different declining balance methods. Financial reporting in straight-line...

...Level Material
Assignment Form
Use the following form to address the five methods of computing book depreciation for health care organizations:
QUESTION
ANSWER – Do not forget to list references at the bottom of the paper. Write a minimum of 30 words for each area listed.
Straight Line Depreciation:
No salvage
Salvage
The simplest most commonly used depreciationmethod. The straight linedepreciationmethod assigns an equal or even amount of depreciation expense over each year of the assets life. The calculation is (purchase price of asset-approx salvage value) divide by estimated useful life of asset.
Accelerated Book Depreciation:
Sum of Years’ Digits Method
Sum-of-the- Years (SYD) computes depreciation by multiplying the depreciation cost of the asset by a fraction. The depreciation is accelerated to reflect that items lose value more rapidly early in their history than late. Calculation = n(n+1) divided by 2.
Accelerated Book Depreciation:
Double Declining Balance Method
The double declining balance (DDB) computes depreciation by multiplying the assets net book value at the beginning of each year by a constant percentage or factor. The constant factor is twice the straight line rate. Under the DDB double means twice or...

...Sum of the Years' Digits Method of Depreciation
Sum of the years' digits method of depreciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old. The formula to calculate depreciation under SYD method is:
SYD Depreciation =
Depreciable Base × Remaining Useful Life
Sum of the Years' Digits
In the above formula, depreciable base is the difference between cost and salvage value of the asset and sum of the years' digits is the sum of the series:
1, 2, 3, ... , n ; where n is the useful life of the asset in years.
Sum of the years' digits can be calculated more conveniently using the following formula:
Sum of the Years' Digits = n(n+1)
2
Sum of the years' digits method can also be applied on monthly basis, in which case the above formula to calculate the sum of the years' digits becomes much useful.
Example
Use sum of the years' digits method of depreciation to prepare a depreciation schedule of the following asset:
Cost $45,000
Salvage Value $5,000
Useful Life in Years 4
Asset is Depreciated Yearly
Solution
Sum of the Years' Digits = 1 + 2 + 3 + 4 = 4(4 + 1) ÷ 2 = 10
Depreciable Base = $45,000 − $5,000 = $40,000
Year Depreciable
Base...