Question

Hello,

I need a help with the following question.

Compute Double Declining Balance Depreciation.

The company reported: The machine costs $75,000, and its estimated useful life is 5 years, after which the expected salvage value is $5,000. Compute depreciation expense and accumulated depreciation for each year using double declining balance. I calculated myself for the 5 years, but the 5^th year number is larger than the salvage value. So please, show how you calculate DDB for the 5 years. To calculate, I used a Straight line method first. SL Depreciation rate =20%. So based on this, DDB depreciation rate is 2*20%= 40%.

Answer 1

Depreciation Accumulated Book Value Еxpense Depreciation Year Cost At acquisition $ 75,000 30,000 75,000 S $45,000 1 30,000 48,000 27,000 75,000 S S 2 18,000 10,800 58,800 16,200 3 75,000 S 75,000 4,720 75,000 4 S 6,480 65,280 9,720 5 S 70,000 5,000 Double Decling balance method Machine Cost = $75,000 Salvage Value = $5,000 Useful Life 5 Years Double decling Sepreciation rate = 1/5*2*100 40% Depreciation for 1st year = $75,000*40% = $30,000 Depreciation for 2nd year = ($75,000-S30,000)*40% = $18,000 Depreciation for 3rd year = (S75,000-$30,000-$18,000)*40%= $10,800 Depreciation for 4th year = ($75,000-$30,000-$18,000-$10,800)*40%=S6,480 Depreciation for 5th year = ($75,000-$30,000-$18,000-S10,800-$6,480)*40% =S3,888 or 4,720 which ever is higher is the depreciation for 5th year Note Under Double Declining Balance method depreciation only be allowed up to the point where book value Residuval Value. In This Problem Excess Depreciation Provided instead of Actuval Depreciation to maintain Residuval value at the end of 5th year