Question

The following table demonstrates the double-declining balance method for the same asset. The depreciation rate is equal to double the depreciation rate for the straight-line method. The annual depreciation in the straight-line method is $2,000. Therefore the depreciation rate is $2,000 divided by $10,000, which is 20%. In the double-declining balance method this rate is doubled to 40%. Fill up the blanks.

Year	Book value (start of year)	Depreciation Rate	Depreciation expense	Accumulated  Depreciation	Book value (year end)
1	10000	40%	4000	4000
2		40%	2400	6400	3600
3	3600	40%			2160
4	2160	2160-160	160	8000	2000

Answer 1

Year	Book value	Depreciation Rate	Depreciation expense	Accumulated  Depreciation	Book value
	(start of year)				(year end)
1	$    10,000.00	40%	$4,000.00	$4,000.00	$6,000.00
2	$      6,000.00	40%	$2,400.00	$6,400.00	$3,600.00
3	$      3,600.00	40%	$1,440.00	$7,840.00	$2,160.00
4	$      2,160.00	2160-160	$   160.00	$8,000.00	$2,000.00

It can be seen that in Double declining balance method depreciation expense in year 4 is not 40% because 40% depreciation would make ending book value lower than residual value so depreciation is limited to an amount which makes ending book value equal to residual value.