I’m having a hard time understanding Q1 for SOONER.
Why are we taking 50% from the Beginning Net Book Value amount for each year? Where does the fact that we have a planned residual value of 100 come in? To me it seems like it’s a coincidence that by the end of year 4, we have 100 residual value remaining.
They are doing a very poor job of explaining the concept in the section above the blue box. The little paragraph contains all the information you need but would be so much clearer if they only would put a freaking formula for each method (they didn’t even bother to type the names of the declining balance method in bold face).
The formula for double declining balance is:
depreciation expense in year x= 2 * book value at beginning of year x/depreciable live in years
Sooner Inc. uses double declining, which means we ignore the residual value when computing the depreciation expense, BUT we still use the residual value to let us know, when we need to stop depreciating.
First year, Soone Inc does the following:
2*2300/4=1150
Notice that the remaining balance happens to be the same as the depreciation expense, but that is a mere coincidence. In the last year, you need to hit your residual value, so whether your depreciation expense exceeds that value or falls short, you expense an amount that gets you to the residual value.
Also, remember that the BA II Plus has a function to create depreciation schedules called ‘DEPR’ (which does not stand for depreciation but is Although the calculations for depreciations are straightforward (if you remember the correct formula), I found that I was faster using DEPR, but
Ah I see what’ you’re saying, reread the paragraph found the bit you were talking about.
What do you mean by depreciable >>>>live<<<<< in years?
Also, for the final year, if your depreciation expense exceeds or falls short, are there any repercussions?
I don’t have the TI calc, I’ve got HP.
the ddb method - charges EXTRA depreciation in the earlier years of life.
total depreciation on the piece of equipment is the same ACROSS ALL METHODS.
Regular method - you charge (Orig Value - Salvage Value) / # of years each year.
DDB method -> you charge higher value in earlier years - and if Orig Value - Total Depreciation > Salvage Value you do not charge any depreciation from that year onwards.
sorry, I meant ‘life’, not ‘live’.
In the final year, you adjust your depreciation expense to make sure that you end up at the salvage value.
As long as the original value - tot depr is bigger than salvave value, you do still charge depreciation, only when you are at or below the salvage value you do stop.