Question

il lo Collectitml mework Saved Help Save & Exit Check The following information applies to the questions displayed below.) NewTech purchases computer equipment for $255,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $20,000. Exercise 8-8 Double-declining-balance depreciation LO P1 Prepare a table showing depreciation and book value for each of the four years assuming double-declining balance depreciation (Enter all amounts positive values.) Depreciation for the Period Year Beginning-Year Depreciation Book Value Rate End of Period Accumulated Year-End Depreciation Book Value Annual Depreciation Year 1 Year 2 Year 3 Year 4 Total

Answer 1

Under double declining balance method, depreciation is calculated on the basis of double the straight line percentage.

Depreciation rate in double declining balance method = 2 / N * 100,

where, N is the useful life.

Depreciation rate = 2 / 4 * 100 = 50%

Depreciation schedule table is given below:

Year	Beginning year book value	Depreciation rate	Annual depreciation	Accumulated depreciation	Year end book value
Year1	255000	50%	127500	127500	127500
Year 2	127500	50%	63750	191250	63750
Year 3	63750	50%	20000	211250	20000
Year 4	20000	50%	0	211250	20000

In the above schedule, in the fourth column, annual depreciation is calculated by multiplying Beginning year book value by Depreciation rate. In the fifth column, accumulated depreciation is sum of annual deprecation of current year and previous years. In the sixth column, year end book value is calculated by subtracting accumulated depreciation from beginning year book value.

In Year 3, annual depreciation is only $20000 is taken because book value cannot drop below salvage value. No depreciation expense is recorded in year 4.