A company purchases a piece of equipment costing $
A company purchases a piece of equipment costing $7,000,000 that it expects will have a useful life of 5 years and a salvage value of $600,000.Assuming that the company uses double-declining-balance depreciation method rather than straight-line depreciation methods, the third-year depreciation expense difference and EBIT will be:
A.$272,000 and the EBIT is higher using DDB.
B.$400,000 and the EBIT is lower using DDB.
C.$675,200 and the EBIT is higher using DDB.
参考解答
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2024-10-11 06:38:07
Ans:A.
Straight-line depreciation =(cost- salvage value) / useful life
= ($7,000,000 - $600,00)/5
= $1,280,000
DDB depreciation expense
=(original cost- accumulation depreciation) *
original cost- accumulation depreciation=net book value
Year 1 = $7,000,000 *0.4=$2,800,000
Year 2 beginning net book value = $7,000,000-$2,800,000
=$4,200,000
Year 2 = $4,200,000 *0.4 = $1,680,000
Year 3 beginning net book value = $4,200,000 - $1,680,000
=$2,520,000
Year 3 = $2,520,00 *0.4 = $1,008,000
Depreciation expense in the third year will be $272,000 less using DDB, so EBIT (operating income) will be $272,000 higher.Note that year 3 is the crossover year in which depreciation expense from both methods was nearly equal.In the years after the crossover year, DDB will provide less tax shelter from depreciation and thus a higher EBIT.
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