Question
In: Accounting
The value of a machine was $400,000 when purchased new one year ago. It has an...
The value of a machine was $400,000 when purchased new one year ago. It has an expected life of five years and the income statement shows the straight line depreciation rate as 20%.
Using double declining balance depreciation, what is the
value of the machine at the end of year two?
Solutions
Expert Solution
Cost of machine = $400,000
Double declining depreciation rate = 2 x Straight line rate
= 2 x 20%
= 40%
Depreciation expense for year 1 = Cost of machine x Double declining depreciation rate
= 400,000 x 40%
= $160,000
Book value of machine at the end of year 1 = Cost of machine- Depreciation expense for year 1
= 400,000-160,000
= $240,000
Depreciation expense for year 2 = Book value of machine at the end of year 1 x Double declining depreciation rate
= 240,000 x 40%
= $96,000
Book value of machine at the end of year 2 = Book value of machine at the end of year 1 - Depreciation expense for year 2
= 240,000-96,000
= $144,000
Accumulated depreciation expense for two years = Depreciation expense for year 1 + Depreciation expense for year 2
= 160,000+96,000
= $256,000
Book value of machine at the end of year two = Cost of machine - Accumulated depreciation expense for two years
= 400,000-256,000
= $144,000
The value of the machine at the end of year two = $144,000
ekkarill92 answered 2 years agoRelated Solutions
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