Question

An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double-declining-balance depreciation, Year 1 depreciation would be:

A) $20,000.
B) $40,000.
C) $18,250.
D) $36,500.

Answer 1

To calculate the depreciation for Year 1 using the double-declining-balance method, you need to first determine the straight-line depreciation rate, which is:

Straight-line depreciation rate = (Cost - Salvage value) / Useful life

Straight-line depreciation rate = ($80,000 - $7,000) / 4 = $18,250 per year

The double-declining-balance rate is twice the straight-line rate, or:

Double-declining-balance rate = 2 x $18,250 = $36,500 per year

Using this rate, the depreciation for Year 1 is:

Year 1 depreciation = Beginning book value x Double-declining-balance rate

Year 1 depreciation = $80,000 x $36,500 / $80,000 = $36,500

Therefore, the answer is D) $36,500.