Question

On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $43,625. The expenditures made to acquire the asset were as follows: Purchase price $ 198,000 Freight charges 5,200 Installation charges 8,000 Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life. Required: 1. Calculate depreciation for each year of the asset’s eight-year life.

	Depreciation for the Period End of Period Year Beginning of Period Book Value Depreciation Rate Annual Depreciation Accumulated Depreciation Book Value 2018 % 2019 % 2020 % 0 0 2021 % 2022 0 2023 2024 2025 Total $0

Answer 1

Double declining balance method of depreciation is a technique to accelarate depreciation, depreciation charged under DDB method is double the rate of depreciation of asset.

Cost of the Equipment:

(In $)

Purchase price	198,000
Freight charges	5,200
Installation charges	8,000
Total cost of equipment	211,200

Rate of depreciation under straight line method for calculation of rate depreciation under DDB Method.

= (cost of equipment / useful life)/cost of equipment

= (211,200/8)/211,200

= 12.5%

Rate of depreciation as per DDB method is 12.5% * 2 ie., 25%

Depreciation schedule:

(In $)

Year	Book value @ begining of year	Depreciation rate	Annual depreciation	Accumulated depreciation	Book value @ end of year
2018	211,200	25%	52,800	52,800	158,400
2019	158,400	25%	39,600	92,400	118,800
2020	118,800	25%	29,700	122,100	89,100
2021	89,100	25%	22,275	144,375	66,825
2022	66,825		5,800	150,175	61,025
2023	61,025		5,800	155,975	55,225
2024	55,225		5,800	161,775	49,425
2025	49,425		5,800	167,575	43,625
Total			167,575

Depreciation after switch to straight line method is

= (66,825-43,625)/4

= $ 5,800