Depreciation Concept

Assignment Exercise 8-3: Depreciation Concept

As expected, an asset will decline in value over a given period of time depending on
several factors (Baker & Baker, 2013). However, the amount of depreciation will differ based on
the type of method used. In this case, the two purchased equipment in MHS will have different
depreciating values when the straight line and the double-declining balance depreciation methods
are used as demonstrated below.

The Straight Line Depreciation

MHS’s Lab Equipment
Year Annual
Depreciation

Remaining Balance
Beginning Balance = $300,000
1 57,000 228000
2 57,000 171000
3 57,000 114000
4 57,000 57000
5 57,000 0
Depreciation will not be deducted from the beginning balance but the remaining balance after
removing the 5% salvage cost.
300,000 * 95% = $ 285,000
$ 285,000 will then be divided by 5 years to get an equal amount of the depreciating value.
MHS’S Radiology Equipment
Year Annual Depreciation Remaining Balance

ASSIGNMENT WEEK 4 3

Beginning Balance = $800,000
1 102857.14 617142.86
2 102857.14 514285.72
3 102857.14 411428.58
4 102857.14 308571.44
5 102857.14 205714.3
6 102857.14 102857.16
7 102857.14 0
If the salvage value is salvage value (10%) the depreciating amount will be 90% * 8000 =
720000

The Double-decline Balance Depreciation

MHS’s Lab Equipment
In this case, 95% will be divided by 5 years to give 19% which will then be doubled to
38%. The 38% will be multiplied by the remaining depreciating balance of $285,000. However,
this method will have the last two years will use the straight line method (Droms & Wright,
2015). Therefore;
Year Annual Depreciation Remaining Balance
Beginning Balance = $300,000
1 108300 176700
2 67146 109554
3 41,630.52 67923.48
4 33961.74 33961.74
5 33961.74 0

MHS’S Radiology Equipment

ASSIGNMENT WEEK 4 4
90% of the remaining balance divided by 7 years will give 12.86% which is then doubled
to 25.71% and used as the multiplying factor. Therefore;
Year Annual Depreciation Remaining Balance
Beginning Balance = $800,000
1 187200 532800
2 138528 394272
3 102510.72 291761.28
4 75857.93 215903.35
5 56134.87 159768.48
6 79884.24 79884.24
7 79884.24 0

ASSIGNMENT WEEK 4 5

References

Baker, J. J., & Baker, R. W. (2013). Health care finance. Jones & Bartlett Publishers.
Droms, W. G., & Wright, J. O. (2015). Finance and accounting for nonfinancial managers: All
the basics you need to know. Basic Books.

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