Question

On October 1, 2018, Swifty Company places a new asset into service. The cost of the asset is $125000 with an estimated 5-year life and $30500 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2018, balance sheet assuming that Swifty Company uses the double-declining-balance method of depreciation?

Answer 1

The book value of the plant asset on the December 31, 2018 is $75,000.

Step-by-step explanation:

Determine the depreciable cost,

The depreciable cost = Acquisition cost - Salvage value.

The depreciable cost = 125,000 - 30,500.

The depreciable cost = $94,500.

Determine the annual depreciation expense,

The annual depreciation expense = depreciable cost/useful life

The annual depreciation expense = 94,000/5

The annual depreciation expense = $18,900.

Find the % rate of depreciation .

The % rate of depreciation = (18,900/94,500) × 100.

% rate of depreciation = 20%

Since it is the double-declining-balance method of depreciation we multiply the % rate by 2 = 20% × 2 = 40%

Applying the rate to the carrying value of the asset to obtain current year's depreciation expense.

Current year's depreciation expense = Carrying value of the asset × the depreciation rate %.

Current year's depreciation expense = 125,000 × 40%.

Current year's depreciation expense = $75,000