Question

On January 1, 2017, company purchased a molding machine at 67.000 TL. The estimated useful life of the machine is 4 years and the estimated salvage value is 2.000 TL. At the beginning of the 3rd year a major renovation is maintained on the machine. The cost of the renovation is 34.000 TL. Because of the renovation estimated useful life extended to 6 years in total  and the salvage value increased to 2.500 TL. Assume the company uses double declining method  prepare the depreciation schedule for 6 years showing depreciation expense, accumulated depreciation and the book value of the machine, for each year.

Prepare the depreciation schedule if the company uses double declining balance method.

Answer 1

On January 1 2017, the company purchased a machine at 67000 , with salvage value of $ 2000 and useful life = 4 years,

For double declining balance method , the depreciation rate is double of straight line method depreciation and the value to be charged for deprecaition is the revised cost of machinery after reducing the deprecaition of previous cost.

Here the depreciation % is for 4 years,

hence the rate of depreciation % used for double declining balance method = 100%/4 = 25% * 2 = 50%.

The depreciation schedule for double declining balance method will be as follows:

Year	Book Value at start of year	Depreciation %	Depreciation Expenses	Accumulated Depreciation	Book value year end
2017	67000	50%	33500	33500	33500
2018	33500	50%	16750	50250	16750

But in 2019 beginning the renovation is made for $34000 ,which has increased the useful life and increased the salvage value hence this cost to be capitalised and addded to the book value of 2018 end.

Here the useful life is incresed for total 6 years however 2 years has passed already hence only for 4 years depreciation is to be charged , so for the total cost of $ 50750 , the depreciation is 50% for the remaining 4 years.

The combined schedule will be as follows:

Year	Book Value at start of year	Addition during the year	Final Book Value	Depreciation %	Depreciation Expenses	Accumulated Depreciation	Book value year end
2017	0	67000	67000	50%	33500	33500	33500
2018	33500	0	33500	50%	16750	50250	16750
2019	16750	34000	50750	50%	25375	75625	25375
2020	25375	0	25375	50%	12688	88313	12688
2021	12688	0	12688	50%	6344	94656	6344
2022	6344	0	6344	50%	3172	97828	3172