Question

Marlow Company purchased a point of sale system on January 1 for $10,000. This system has a useful life of 10 years and a salvage value of $1,000. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?

Answer 1

Given:

POS system = 3,400

useful life = 10 years

salvage value = 400

double declining method means that the depreciation expense is higher in the early years than the later years of the asset.

Straight line depreciation = (3,400 - 400) / 10 yrs = 300

300 / 3000 = 0.10 or 10%

10% x 2 = 20% double declining rate

Depreciation expense under the double declining method:

Year 1: 3,400 x 20% = 680 depreciation expense.

Year 1 book value = 3,400 - 680 = 2,720

Year 2 : 2,720 x 20% = 544 depreciation expense

Year 2 book value = 2,720 - 544 = 2,176