Depreciation Methods
Response to the following problem:
The Sayers Company purchased a building for $250,000 on January 2, 2010. The building has an expected residual value of $20,000 at the end of its expected life of 20 years.
Required
Prepare a schedule showing the depreciation for 2010 and 2011 and the book value on December 31, 2010 and December 31, 2011, for each of the following methods:
1. Straight-line
2. Sum-of-the-years'-digits
3. Double-declining-balance
4. 150%-declining-balance
5. Compute the company's return on assets (net income divided by average total assets) for each method in 2010 and 2011 assuming that income before depreciation is $50,000. For simplicity, use ending assets, and ignore interest, income taxes, and other assets. Why does the rate of return increase each year?