Question

Free Corporation acquired machinery at a cost of $1,250,000 on January 1, 2018. Free Corporation adopted the double-declining balance method. They determined that the estimated useful life was ten years, with no residual value. At the beginning of 2021, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2021 would be

Answer 1

$91,429

Step-by-step explanation:

Depreciation using the double-declining balance method is calculated as follows :

Depreciation expense = 2 x SLDP X BVSLDP

where,

SLDP = 100 ÷ useful life

= 100 ÷ 10

= 10%

therefore,

2018

Depreciation expense = 2 x 10% x $1,250,000 = $250,000

2019

Depreciation expense = 2 x 10% x ($1,250,000 - $250,000) = $200,000

2020

Depreciation expense = 2 x 10% x ($1,250,000 - $250,000 - $200,000 = $160,000

2021

Step 1 : New Depreciable Amount calculation

New Depreciable Amount = Cost - Accumulated depreciation to date

where,

Accumulated depreciation = total depreciation to date

= $250,000 + $200,000 + $160,000

= $610, 000

therefore

New Depreciable Amount = $1,250,000 - $610, 000

= $640,000

Step 2 : New useful life calculation

New useful life = 10 - 3 = 7

Step 3 : Depreciation expense

Depreciation expense = New Depreciable Amount ÷ Estimated useful life

= $640,000 ÷ 7

= $91,429

The depreciation expense for 2021 would be $91,429