Question

A building is acquired on January 1,at a cost of 930,000 with estimated useful life of 8 years and salvage value of 73,700

Answer 1

Year 1 = $196,000

Year 2= $156,800

Year 3= $125,440

Explanation:

$980,000 x 20 % = $196,000

Net book value

$980,000 - $196,000 = $784,000 (to be used as base for year 2)

Year 2

$784,000 x 20% = $156,800

Net book value

$784,000 - 156,800 = $627,200

Year 3

$627,200 x 20% = $125,440

Net book value

$627,200 - $125,440 = $501,760

*Salvage value is ignored in computing the yearly depreciation expense under double-declining-balance method. The reason of it is that, it will take longer to depreciate an asset compare to it’s useful life if we deduct salvage value from original cost in depreciating an asset.