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?

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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 1 year ago

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