Fi504 - Accounting and Finance: Managerial Use and Analysis

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A)
Straight-line Depreciation

ComputationEnd of Year
YearDCXDR=ADEADBV
2012 220,000 25% 55,00055,000195,000
2013220,00025%55,000110,000140,000
2014220,00025%55,000165,00085,000
2015220,00025%55,000220,00030,000

($250,000 – $30,000) 1/4 = 25%

Please note abbreviations are the same as bellow

Double- Declining-Balance Depreciation

ComputationEnd of Year
Book ValueAnnual
From the beginningDepreciationDepreciationAccumulatedBook
Yearof yearXRate (DR)=Expense (ADE)Depreciation (AD)Value (BV)
2012$250,00050%*$125,000$125,000$125,000
2013 125,00050%62,500187,50062,500
2014 62,50050%31,250218,75031,250
2015 31,25050%1,250**220,00030,000

(1/4) X 2 = 50%

B)
Which method would result in the higher reported 2012 income? In the highest total reported income over the 4-year period? The method that would result in the higher reported income would be the Straight-line depreciation because the depreciation expense. Within he years reported, both methods have the same amount of depreciation expense and would not differentiate within that four year period. C)

Which method would result in the lower reported 2012 income? In the lowest total reported income over the 4-year period? If the straight-line depreciation provides the higher amount for depreciation then the double-declining balance would provide the lower 2012 income. However, this would not change the results of the total income over the 4-year period. Both methods would produce the same total income at the end of the 4-year period.
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