Homework Answers
Depreciation expense to be charged using the Double Declining Method
It is a method of depreciation used by the companies when they want to quickly depreciate an asset.
The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.
Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.
The formula for double declining balance is:
Annual depreciation = Book Value * 100% / life * 2
Calculate the percentage that should be used first.
Percentage = 100% / Useful Life x 2 = 100% / 3 x 2 = 2/3 or 0.6667 or 66.66667%
Once the percentage is calculated, it is the same for the rest of the asset’s life.
|
Year |
DDB Depreciation for the period |
End of Period |
|||
|
Beginning of period book value |
Depreciation Rate |
Depreciation Expenses |
Accumulated Depreciation |
Book Value |
|
|
Year 1 |
54,270 |
0.6667 |
27,136 (Refer Note 1) (36,182*9/12) |
27,136 |
27,134 |
|
Year 2 |
27,134 |
0.6667 |
18,090 |
45,226 |
9,044 |
|
Year 3 |
9,044 |
0.6667 |
6,029 |
51,256 |
3,014 |
|
Year 4 |
3,014 |
0.6667 |
1,394 2,010 |
$52,650 |
1,620 |
|
TOTAL |
60,302 |
Note 1 – The equipment was purchased on April 1. So the depreciation expenses for Year 1 is recorded for 9 months only.
Note 2 - By applying formula, the depreciation of year 4 is coming $2,010 (3,014*0.6667) but it will reduce the residual value. An asset is depreciated upto its salvage value, hence the Depreciation Expense can be recorded to the extent of $1,394 in Year 4.
The Depreciation Expense will be as follows:
Year 1 - $27,136
Year 2 - $18,090
Year 3 - $6,029
Year 4 - $1,394
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
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