Question

EA7. LO 11.3 Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.

Answer 1

Answer:

Double Declining method of depreciation:

It is a method in which assets are depreciated at twice the normal rate i.e twice the rate at which straight line method of depreciation will be charged.

In the given information;

Alfredo purchased the 3D printer for $900,000.

Salvage value= $15000

Useful life would be 3 years since Alfredo believes the technology will become obsolete and will last only for 3 years.

Calculation of depreciation rate:

(1/ useful life)*100

or, (1/3)*100= 33.33%

Now, doubling the rate of depreciation = 33.33*2= 66.67 % (rounded off 66.6666%)

Depreciation calculation for 3 years
Year	Book value	Depreciation (Book value * 66.67%)	Written down value	Salvage value
1	$          9,00,000.00	$                                  6,00,030.00	$                         2,99,970.00
2	$          2,99,970.00	$                                  1,99,990.00	$                             99,980.00
3	$              99,980.00	$                                     66,656.67	$                             33,323.33	$         15,000.00

There will be a loss of $(33323.33-15000)=$18323.33 at the end of useful life of the asset.

Answer: The depreciation will be:

For Year 1- $600030

For Year-2- $ 199990

For Year 3- $ 66656.67.