Question

Sheffield Company purchases equipment on January 1, Year 1, at a cost of $570,000. The asset is expected to have a service life of 12 years and a salvage value of $51,300.

Compute the amount of depreciation for each of Years 1 through 3 using the double-declining-balance method.

Answer 1

Under double declining balance method,

Depreciation per annum = 2 x straight line depreciation percentage x book value at the beginning of period

And,

Straight line depreciation percentage = 100%/useful life = 100%/12 = 8.33%

Therefore,

For year 1:

Book value in the beginning = $570000

Depreciation expenses = 2 x 8.33% x $570000 = $95019

Book value at the end = $474981

For year 2:

Book value in the beginning = $474981

Depreciation expenses = 2 x 8.33% x $474981= $79179.33

Book value at the end = $395801.67

For year 3:

Book value in the beginning = $395801.67

Depreciation expenses = 2 x 8.33% x $395801.67 = $65980.14

Book value at the end = $329821.53