P10-4 Calculating depreciation by three methods and the advantage of accelerated depreciation for tax purposes [20-30 min] On 3 January 2017, Joe Campbell Photography paid $224000 for photo equipment. In addition to the purchase price, Campbell paid $700 freight charges, $100 insurance for the equipment while in transit, $12 100 customs duty, and $3100 for specialised training to be able to use the equipment. Campbell estimates that the equipment will remain in service for five years and have a residual value of $20000. The equipment should produce 50000 photos the first year, with annual production decreasing by 5000 photos during each of the next four years (that is, 45000 photos in year 2, 40000 in year 3 and so ona total of 200000 photos). In trying to decide which depreciation method to use, Campbell has requested a depreciation schedule for each of three depreciation methods (straight line, units of production and reducing balance). Requirements 1 For each depreciation method, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation and asset carrying amount. For the reducing-balance method, use a depreciation rate based on: 20 000 RB rate: 1 - = 1 0.608 = 0.392 240 000 2 Campbell prepares financial statements using the depreciation method that reports the highest profit in the early years. For income tax purposes, the firm uses the method that minimises income taxes in the early years. Consider the first year of using the equipment. Identify the depreciation methods that meet Campbell's objectives, assuming that the income tax authorities permit the use of any of the methods.