Question

On January 1, 2021, ABC company purchased a piece of machinery for $80,000. The machine had an estimated useful life of 10 years and a $5,000 residual value. On January 1, 2025, ABC Company determined the life of the machine should be revised from 10 years to 20 years and the residual value adjusted to $1,000 at the end of the twenty years. Assume ABC Company depreciates its assets using the double declining balance method of depreciation. Calculate the book value of the machine at December 31, 2026. 25,088

I'm not sure with my answer

Answer 1

The correct answer is $ 25088

Calculation

Wdv depreciation rate = slm depreciation rate × 2

= ( 1/10×100)×2

= 20 %

Firstly we will calculate book value of asset as on 31december 2024

= 80000 × (100%-20%)×(100%-20%)×(100%-20%)×(100%-20%)

= 32768

Now on 1 January 2015 estimated life has changed

So revised double declining depreciation rate

= slm rate × 2

= (1/16)×2

= 12.5 %

Wdv of machine as on 31 December 2026

= wdv of machine as on 1 January 2025 - depreciation expense

= 32768 ×(1-12.5%)×(1-12.5%)

= $ 25088

Thus the correct answer is $ 25088