Question

develop a ddb and 150% depreciation schedule for a commercial coffee roster machine that is purchased for $90,000. the machine has a 6-year life and a salvage value of $15,000. use the depreciation schedule to answer the following:

what are BV after 3 years and after 6 years? which of the two methods writes off more of the first cost over the lifetime of the machine?

Answer 1

Double declining Method
A	Cost	$      90,000.00
B	Residual Value	$      15,000.00
C=A - B	Depreciable base	$      75,000.00
D	Life [in years]	6
E=C/D	Annual SLM depreciation	$      12,500.00
F=E/C	SLM Rate	16.67%
G=F x 2	DDB Rate	33.33%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$    90,000.00	33.33%	$ 30,000.00	$        60,000.00	$   30,000.00
2	$    60,000.00	33.33%	$ 20,000.00	$       40,000.00	$   50,000.00
3	$    40,000.00	33.33%	$ 13,333.33	$        26,666.67	$   63,333.33
4	$    26,666.67	33.33%	$    8,888.89	$        17,777.78	$   72,222.22
5	$    17,777.78	33.33%	$    2,777.78	$        15,000.00	$   75,000.00
6	$    15,000.00	33.33%	$                 -	$        15,000.00	$   75,000.00

Depreciation in year 5 at DDB rate would reduce Ending book value to lower than residual value so deprecation is charged upto an amount which makes ending book value equal to residual value.

Since residual value is same as book value no depreciation is charged in year 6.

150% Declining balance method
A	Cost	$      90,000.00
B	Residual Value	$      15,000.00
C=A - B	Depreciable base	$      75,000.00
D	Life [in years]	6
E=C/D	Annual SLM depreciation	$      12,500.00
F=E/C	SLM Rate	16.67%
G=F x 2	150% depreciation rate Rate	25.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$    90,000.00	25.00%	$ 22,500.00	$        67,500.00	$   22,500.00
2	$    67,500.00	25.00%	$ 16,875.00	$        50,625.00	$   39,375.00
3	$    50,625.00	25.00%	$ 12,656.25	$        37,968.75	$   52,031.25
4	$    37,968.75	25.00%	$    9,492.19	$        28,476.56	$   61,523.44
5	$    28,476.56	25.00%	$    7,119.14	$        21,357.42	$   68,642.58
6	$    21,357.42	25.00%	$    6,357.42	$        15,000.00	$   75,000.00

Depreciation in year 6 has been put to $6357.42 because otherwise depreciation amount was lower which was making ending book value higher than residual value. Total accumulated depreciation in last year of asset’s life should be equal to depreciation base.

	Book value at the end of 3 years	Book value at the end of 6 years
DDB	$   26,666.67	$ 15000
150%	$   37,968.75	$ 15000

Alternate solution with 0 decimal places in answer-

	Book value at the end of 3 years	Book value at the end of 6 years
DDB	$   26,667	$ 15000
150%	$   37,969	$ 15000

Requirement 2

Which of the two methods writes off more of the first cost over the lifetime of the machine?

Answer--- Both.

No matter which method is used total depreciation in life of asset will always be same.