DDB

CFA Level I
#1

Company purchased New machine for $100,000 Shipping fees: 10,000 Installation fees: 5000 Estimated salvage value = 25,000 Economic life = 6 years What is the difference between Straight-line depreciation and Double-Declining Balance depreciation in the second year of the asset’s life? Answer: 10,556 How?

#2

Make sure that you’re adding the shipping and installation to the total cost of the machine when calculating the depreciation. So the total cost is $155,000.

#3

gotcha!

#4

remember that any expenses that are getting an asset ready for its intended use should be capitalized.

#5

steph96 Wrote: ------------------------------------------------------- > Make sure that you’re adding the shipping and > installation to the total cost of the machine when > calculating the depreciation. So the total cost > is $155,000. Typo, right? TC = $115,000

#6

JoeyDVivre Wrote: ------------------------------------------------------- > steph96 Wrote: > -------------------------------------------------- > ----- > > Make sure that you’re adding the shipping and > > installation to the total cost of the machine > when > > calculating the depreciation. So the total > cost > > is $155,000. > > > Typo, right? TC = $115,000 Yes, typo…thanks for catching that!

#7

Cost on the books: purchase price+shipping+installation = 115K SL:(115K-25k)/6=15K, this would be constant throughout the life of the asset DDB:use the depreciation worksheet of the calculator, with: DB=200, LIF=6, M01=1, CST=115K,SAL=25K, YR=2, you get the depreciation for the second year being 25.556K The difference between the two depreciation methods would be 25.556K-10K=10.556K

#8

So quick question on Depreciation in calculator. Why is DB=200? and MO1 = how many times per year?

#9

The 200 is an auto setting for the declining balance method, meaning 200% (or double) of the straight line method. M01 is a variable, indicating the starting month - depreciation starts in the first month. Check your calculator guideline, the above is for a BA II Plus Professional (works for the BAII Plus too): http://education.ti.com/downloads/guidebooks/financial/baiipluspro/BAIIPLUSPROGuidebook_EN.pdf

#10

thanks

#11

For people w/out the calculator - SL = (115K-25K)/6 = 15000 every year DDB = (115K)*(1/3) = Year one = 38333.33 (115K - 38333.33)*(1/3) = Year two = 25555.55 25,555.55 - 15,000 = 10,555.55 You get the (1/3) for the DDB method because it is 2 times the SL rate of dep. 2*(1/6) Salvage value isn’t factored into DDB until final year, when you just take what is in excess of SV as depreciation.