Question

A company purchased a piece of equipment for $50,000 and the equipment has an expected useful life of five years. Its residual value is estimated to be $4,000. Assuming the company uses the double-declining-balance depreciation method, what is the depreciation expense for the equipment for the second full year?

Answer 1

$12,000

Step-by-step explanation:

Given that,

Cost of equipment = $50,000

Expected useful life = 5 years

Estimated residual value = $4,000

Depreciation refers to the fall in the value of fixed assets with the passage of time.

Here, we are using double-declining-balance depreciation method,

Firstly, we are calculating the straight line depreciation rate as follows:

= (100% ÷ useful life)

= (100% ÷ 5)

= 20%

So, the double-declining depreciation rate is calculated by multiplying the straight line depreciation rate by 2. It is calculated as follows:

= 2 × straight line depreciation rate

= 2 × 20%

= 40%

First year depreciation is calculated as follows:

= Double-declining depreciation rate × Cost of equipment

= 40% × $50,000

= $20,000

Therefore, the amount of depreciation expense for the second year is calculated as follows:

= Double-declining depreciation rate × (Cost of equipment - First year depreciation)

= 40% × ($50,000 - $20,000)

= 0.4 × $30,000

= $12,000