Question

A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years. What is the amount of depreciation for the second full year, using the double-declining method?

Answer 1

$18,750

Step-by-step explanation:

The double declining method of depreciation (DDB) formula is:

DDB= 2 * Cost of the asset * Depreciation rate (DR)

DR= (1/useful life)*100

For this problem:

Value to depreciate: $75,000

DR= (1/4)*100= 25%

DEPRECIATION YEAR 1: DDB= 2 * $75,000*25%= $37,500

Machine´s value year 1: $75,000-$37,500= $37,500

DEPRECIATION YEAR 2: DDB= 2*37,500*25%= $18,750