Question

Using the​ double-declining balance​ method, calculate the annual depreciation expense that will be recorded each year for an asset that cost

$18,000​,

has a useful life of four​ years, and has an estimated salvage value of

$3,600.

Explain what accounting issue​ arises, if​ any, in the third and fourth years.

Determine the depreciable cost.

	Cost	-.	Salvage value	=	Depreciable cost
		-		=

Complete the depreciation schedule using the​ double-declining balance method. ​(Complete all input​ boxes.)

		Book	Annual	Accumulated
Year	Rate	value	depreciation	depreciation
1

2

3

4

Explain what accounting issue​ arises, if​ any, in the third and fourth years.

Answer 1

Determination of Depreciable Cost

Cost	-	Salvage Value	=	Depreciable Cost
$ 18000	-	$ 3600	=	$ 14,400

Depreciation table using double declining balance method(see working note1)

Year	Rate	Book Value	Annual Depreciation	Accumulated Depreciation
1	50%	$ 18000	$ 9000	$ 9000
2	50%	$ 9000	$ 4500	$ 13500
3	50%	$ 4500	$ 900(see working note 2)	$ 14400
4

Accounting issue that arises in the 3^rd and 4^th year are:

3^rd year: Depreciation has to be reduced from $2250 to $900 in order to keep the book value same as the salvage value.

4^th year: Depreciation stops in the 3^rd year itself so no depreciation calculation in the 4^th year.

Working Note 1: Cost= $ 18,000 , useful life= 4 years, Estimated salvage value= $ 3,600

Straight line depreciation percent= ¼=0.25=25%

Depreciation Rate as per double declining method=2* straight line depreciation method=2*25%=50%

Depreciation as per double declining method= depreciation rate* book value at the beginning of the accounting period.

Book Value=Cost of the asset-Accumulated Depreciation

Working Note 2:

Depreciation at the end of year3 = $ 900 in order to keep the book value same as the salvage value