A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipment for $100,000. Explain the concept of depreciation. Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method?
This concept is to "observe the service life of the equipment with a professional judgment and rate the assets physical deteriorations." (Walther, 2012) If the asset is $100,000, and salvage value is $10,000, 3 year life one year depreciation is $30,000 under straight-line and 66,660 in double declining, 33,000 for units-of-output as examples below.
| |Annual Depreciation Expense |Accumulated Depreciation | |Year 1 |$30,000 |$30,000 | |Year 2 | 30,000 | 60,000 | |Year 3 | 30,000 | 90,000 |
| |Annual Depreciation Expense |Accumulated Depreciation |Illustrative Calculation | |Year 1 |$66,660 |$66,660 |$100,000 x 66.66% | |Year 2 | 22,224.44 | 88,884.44 |($100,000 - 66,660) x 66.66% | |Year 3 | 7,409.63 | 96,294.07 |($100,00 - 88,884.44) x 66.66% |
Units of Output
| |Hours Used |Hourly Rate...
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