Question

A machine with a cost of $69,700 has an estimated residual value of $4,935 and an estimated life of 5 years or 19,579 hours. What is the amount of depreciation for the second full year, using the double-declining-balance method?

Answer 1

Amount of depreciation for the second full year, using the double declining balance method=

Step 1st = Calculation of rate of depreciation under double declining balance method =

100% / Estimated useful life

= 100% / 5 = 20%

Step 2nd = Multiply above rate into 2

= 20% × 2 = 40%

Rate of depreciation = 40%

Depreciation for 1st year = $69700 ×40%

= $27880

Book value at the end of 1st year = $69700 - $27880

= $41820

Depriciation for 2nd year = $41820 × 40%

= $16728

Note - Under double declining balance method of depreciation, salvage value is not deducted from cost of asset. Asset is depreciated till it is reached till its salvage value.