Question

Pharoah Company acquires a delivery truck at a cost of $60,000. The truck is expected to have a salvage value of $5,000 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.

	Year 1		Year 2
Annual depreciation expense

Answer 1

Depreciation under Straight Line Method = (Truck Cost - Salvage Value)/ Number of Useful life

=( $ 60,000- $ 5,000)/ 5

= $ 55,000

Rate of Depreciation =20%

depreciation Under Double Declining Balance Method= 2* 20%= 40%

Year	Beginning book value	Depreciation %	Depreciation Expense	Closing Book Value
1	$                     60,000.00	40%	$                        24,000.00	$                                    36,000.00
2	$                     36,000.00	40%	$                        14,400.00	$                                    21,600.00

	Year 1	Year 2
Annual Depreciation	$ 24,000	$ 14,400