(Depreciation–Conceptual Understanding)

(Depreciation–Conceptual Understanding)

Hasselback Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciationschedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that thefollowing schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) thedouble-declining balance method.

Sum-if-the-Years'- Digits
Double Declining Balance

1 $9,000 $15,000 $20,000
2 9,000 12,000 12,000
3 9,000 9,000 7,200
4 9,000 6,000 4,320
5 9,000

Total $45,000

Answer the following questions.

(a) What is the cost of the asset being depreciated?


(b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset?


(c) Which method will produce the highest charge to income in Year 1?

Double-declining balance methodSum-of-the-years'-digits methodStraight-line method

(d) Which method will produce the highest charge to income in Year 4?

Straight-line methodSum-of-the-years'-digits methodDouble-declining balance method

(e) Which method will produce the highest book value for the asset at the end of Year 3?

Sum-of-the-years'-digits methodStraight-line methodDouble-declining balance method

(f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?

Double-declining balance methodStraight-line methodSum-of-the-years'-digits method


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