The double-declining balance method calculates depreciation by taking twice the straight-line depreciation rate for the first year and applying it to the book value of the asset at the beginning of the year. Here is the depreciation schedule for the four-year life of the equipment:
Year 1: Depreciation rate = 2 / 4 = 50%
Depreciation expense = 50% x $100,000 = $50,000
Book value at end of year = $100,000 - $50,000 = $50,000
Year 2: Depreciation rate = 2 / 4 = 50%
Depreciation expense = 50% x $50,000 = $25,000
Book value at end of year = $50,000 - $25,000 = $25,000
Year 3: Depreciation rate = 2 / 4 = 50%
Depreciation expense = 50% x $25,000 = $12,500
Book value at end of year = $25,000 - $12,500 = $12,500
Year 4: Depreciation rate = 2 / 4 = 50%
Depreciation expense = 50% x $12,500 = $6,250
Book value at end of year = $12,500 - $6,250 = $6,250
At the end of year 4, the book value of the equipment is equal to the residual value of $8,000, so we do not depreciate beyond that point. Therefore, the annual depreciation for the four-year life of the equipment is:
Year 1: $50,000
Year 2: $25,000
Year 3: $12,500
Year 4: $6,250
The total depreciation over the four years is $94,750.