Calculating Depreciation Expense for Sandblasting Equipment

Sandblasting Equipment Depreciation Calculation

The sandblasting equipment, acquired at a cost of $40,000 with an estimated residual value of $8,000 and an estimated useful life of eight years, was placed into service on April 1 of the current fiscal year, which ends on December 31.

a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method.

Depreciation Calculation Using Straight-Line Method

Year 1: $3,000
Year 2: $4,000

Explanation:

The computation of the depreciation expense under the straight-line method is as follows:

a) Straight-line method:
= (Original cost - residual value) ÷ (useful life)
For year 1= ($40,000 - $8,000) ÷ (8 years)
= ($32,000) ÷ (4 years) = $4,000
In the first year, the nine months depreciation would be charged= $4,000 × 9 months ÷ 12 months= $3,000
The 9 months is calculated from April 1 to December 31
In this method, the depreciation is the same for all the remaining useful life
So, in year 2, the depreciation expense is $4,000

Depreciation Calculation Using Double-Declining-Balance Method

Year 1: $7,500
Year 2: $8,125

Explanation:

First, we need to find the depreciation rate:

= Percentage ÷ useful life
= 100 ÷ 8
= 12.5%

Since we are using the double-declining balance method, the rate would be doubled to 25%.
In year 1, the original cost is $40,000, so the depreciation expense is:
= $40,000 × 25% × 9 months ÷ 12 months= $7,500
The 9 months is calculated from April 1 to December 31
In year 2, the depreciation expense would be:
= ($40,000 - $7,500) × 25%= $8,125

What are the depreciation expenses for the sandblasting equipment for the current fiscal year and the following fiscal year using the straight-line and double-declining-balance methods?

a. The depreciation expenses for the sandblasting equipment using the straight-line method are $3,000 for the current fiscal year and $4,000 for the following fiscal year.
b. The depreciation expenses using the double-declining-balance method are $7,500 for the current fiscal year and $8,125 for the following fiscal year.