Question

Equipment purchased January 2, for $10,000 including sales tax of$700, installation cost of$1000 and start-up testing of$500. Useful life 5 years or 5,000 machine hours, residual value $500, usage year 1, 1,800 hours, year2, 1,400 hours.

Using the double declining method, the net book value be at the end of year 2 would be:

A $4,032

B $4,472

C $4,212

D $4,392

Answer 1

1. Double Declining Balance Method of Depreciation
	Double Declining Balance Depreciation		=	2 × Straight line Depreciation rate × Book value at the beginning of the year
	Cost (10000+700+1000+500)		=	$         12,200
	Less: Salvage value		=	$              500
	Depreciable Amount		=	$         11,700
	Useful life		=	5 years
	Straight line Depreciation Rate		=	100%
				5
			=	20%
	Double Declining Balance Depreciation Rate		=	2 * 20= 40%
Year	Depreciation for the period				End of Period
	Beginning of Period Book Value	Depreciation Rate	Partial Year	Depreciation Expense	Accumulated Depreciation	Book Value
a	b	c	d	e = b*c*d
1	12,200	40.00%	1	$           4,880	$        4,880	$       7,320
2	7,320	40.00%	1	$           2,928	$        7,808	$       4,392
The net book value be at the end of year 2 would be $4392. So Option D is correct.

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