Problem
On January 3, 2011, Shah Company purchased equipment for exist48,000. Shah planned to keep the equipment for four years and expected the equipment would then be sold fors4,000. On January 5, 2014 Shah sold the computer equipment for exist8,000.
(a) Calculate the depreciation expense for 2011, 2012 and 2013 under (1) the line method and (2) the double diminishing-balance method.
(b) Calculate the gain or loss on disposal if Shah had used (1) the straight-line method and (2) the double diminishing-balance method.
(c) Explain why the gain or loss on disposal is not the same under the two depreciation methods.
(d) Calculate the total depreciation expense plus the loss or minus the gain under (1) the straight method and (2) the double diminishing-balance method. Comment on your findings.