Question

A piece of equipment was acquired on January 1, 2018, at a cost of $28,000, with an estimated residual value of $4,000 and an estimated useful life of Four years. The company uses the double-declining-balance method. What is its book value at December 31, 2019?

Answer 1

$7,000

Step-by-step explanation:

Data provided in the question:

Cost of the equipment = $28,000

Residual value = $4,000

Useful life = 4 years

Now,

Using the double-declining-balance method

Rate of annual depreciation = 2 × [1 ÷ ( useful life ) ]

= 2 × [1 ÷ 4 ]

= 0.5 or 50%

Thus,

Book value at the end of 2018 i.e 31 December 2018

= Book value on January 1, 2018 - Depreciation

= $28,000 - ( 0.5 × $28,000 )

= $28,000 - $14,000

= $14,000

Hence,

Book value on 31 December 2019

= Book value on January 1, 2019 - Depreciation

= $14,000 - ( 0.5 × $14,000 )

= $14,000 - $7,000

= $7,000