Question

An asset has a cost of $50,000 with a residual value of $10,000. it has a life of 5 years and was purchased on january 1. its fourth full year of depreciation expense under double-declining-balance will be

Answer 1

Hi there

The double declining balance method of depreciation, also known as the 200% declining balance method of depreciation, is a common form of accelerated depreciation. Accelerated depreciation means that an asset will be depreciated faster than would be the case under the straight line method. Under declining balance method the residual value is not subtracted from from the cost of 50000

Now let's start to solve the question
First find the depreciation rate
100/5=20% this is the depreciation rate of straight line method

So the depreciation rate under declining balance method is double of the rate of straight line method
So it's 40%

In the first year the depreciation
50,000×0.4=20,000
book value
50,000−20,000=30,00
In the second year the depreciation
30,000×0.4=12,000
book value
30,000−12,000=18,000
in the third year the depreciation
18,000×0.4=7,200
book value
18,000−7,200=10,800
in the fourth year the depreciation is
10,800×0.4=4,320.

its fourth full year of depreciation expense under double-declining-balance will be 4320