Hubbub Company Ltd acquired equipment at the beginning of Year
Hubbub Company Ltd. acquired equipment at the beginning of Year l. The asset has an estimated useful life of five years. An employee has prepared depreciation schedules for this asset using two different methods to compare the results of using one method with the results of using the other. Assume that the following schedules have been correctly prepared for this asset using
(1) The straight-line method
(2) The double-declining-balance method.
Instructions
(a) What is the cost of the asset that is being depreciated?
(b) What amount, if any, was used in the depreciation calculations for the residual value of this asset?
(c) Which method will produce the higher net income in Year 1?
(d) Which method will produce the higher charge to income in Year 4?
(e) Which method will produce the higher carrying amount for the asset at the end of Year 3?
(f) Which method will produce the higher cash flow in Year 1? In Year 4?
(g) If the asset is sold at the end of Year 3, which method would yield the higher gain (or lower loss) on disposal of the asset?
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