Final answer:
Depreciation for each year using the diminishing-balance method is calculated at a rate of 50%, which is double the straight-line rate for a truck with a 4-year useful life. The calculating begins with the initial cost and consecutively uses the beginning-of-year book value minus depreciation from the previous year.
Step-by-step explanation:
To calculate the depreciation of the delivery truck using the diminishing-balance method with a rate double the straight-line rate, first determine the straight-line depreciation rate which is 1 divided by the useful life of the asset. As the truck has a 4-year useful life, the straight-line depreciation rate is 25% (1/4). Therefore, the diminishing balance rate, being double, is 50%.
For the first year, the depreciation expense is calculated on the full cost of the truck, which is $84,240. Thus, 50% of $84,240 gives a depreciation expense of $42,120.
For the second year, the depreciation is based on the book value at the beginning of the year minus the residual value. The book value at the beginning of the second year is the cost minus the first year's depreciation, which is $84,240 - $42,120 = $42,120. So, 50% of $42,120 gives a depreciation expense of $21,060.
To calculate depreciation for the third and fourth years, this process is repeated, always based on the new book value at the beginning of each year which is the previous year's book value minus that year's depreciation. Remember the residual value is not depreciated and so it is taken into account within the calculations only as the lower limit.