Question

You have a tax basis of $80,000 and a useful life of five years and no salvage value. Provide a depreciation schedule (dk for k=1-5) for 200% declining balance with switchover to straight line. Specify the year to switchover. Determine the depreciation amounts using the 200% declining balance and straight-line methods and BV amounts for each year. (Round to the nearest dollar.) 200% DB Method, $ Depreciation SL Method, $ Amount Selected, Year BVk; $

Answer 1

Switching to Straight line method (SLM) occurs in the year when DDB method depreciation is lower than SLM method depreciation.

SLM depreciation per year ($) = Cost / Useful life = 80,000 / 5 = 16,000

SLM depreciation rate = 1 / Useful life = 1 / 5 = 0.2

200% DDB Depreciation rate = 2 x SLM depreciation rate = 2 x 0.2 = 0.4

YEAR	Beginning Book Value	DB Depreciation	SLM Depreciation	Switch?	Annual Depreciation Selected	Ending Book Value (BVk)
1	80,000	32,000	16,000	NO	32,000	48,000
2	48,000	19,200	16,000	NO	19,200	28,800
3	28,800	11,520	16,000	YES	16,000	12,800
4	12,800	5,120	16,000		16,000	-3,200
5	-3,200	-1,280	16,000		16,000	-19,200

Year to switch = Year 3