Question

Required information Use the following information for the Exercises below. The following information applies to the questions displayed below.) Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $84.200. The machine's useful life is estimated at 10 years, or 386,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 32,600 units of product. Exercise 10-6 Double-declining-balance depreciation LO P1 Determine the machine's second-year depreciation using the double-declining balance method. Double-declining-balance Depreciation Choose Factors: X Choose Factor(%) - Annual Depreciation Expense Depreciation expense - First year's depreciation Second year's depreciation

Answer 1

Answer:-

Double declining balance method is a form of an accelerated depreciation method in which the asset value is depreciated at twice the rate it is done in the straight-line method.

However, accelerated depreciation does not mean that the depreciation expense will also be higher. The asset will depreciate by the same amount however it will be expensed higher in early years of its useful life while the depreciation expense will be lower in the later years of as compared to the straight line method of depreciation.

Cost of machine = $84,200

Salvage value = $7,000

The useful life of the machine = 10 years

Depreciation rate = 1 / 10 × 100 = 10%

Double-declining depreciation rate = 2 × 10% = 20%

Double-declining-balance depreciation for 1st year = Cost of machine × Double-declining depreciation rate

                                                                                = $84,200 × 20% = $16,840

Double-declining-balance depreciation for 2nd year = ($84,200 - $16,840) × 20% = $13,472

Note: In double decling depreciation method, initially the salvage is ignored. Depreciation rate is calculated using useful life only. So, unit of production is not considered.

Double-declining-balance Depreciation Choose factors: Choose factor (%) Beginning book value x $84,200 x $67,360 x First year's depreciation Second year's depreciation Annula depreciation expense = Depreciation expense $16,840 = $13,472 20% 20% 20%