Question

Al Rayyan company purchased a new assembly equipment on the 1st of January 2015, which costed $ 150,000 with a residual value of $ 24,000 and estimated useful life of 5 years or 210,000 units. The equipment produced 51,000 units in 2015 and 45,000 units in 2016. The company's fiscal year ends on 31 December of each year. Under the double-declining balance method, what will be the depreciation expense on 31 December 2016?

a. 25,200

b. 30,000

c. 36,000

d. 60,000

Answer 1

Original cost	$150,000
Useful life	5 years
Salvage value	$24,000

As this is the double-declining depreciation method, the annual depreciation rate is double the straight-line rate:

Double-declining Depreciation Rate

= Straight-line Rate x 2 = (1 ÷ 5 years) x 2 = 40%

During the fourth year, the calculated depreciation expense would have reduced the net book value below $24,000 – the salvage value – so only $8400 of the calculated depreciation was recognized. During the fifth year, no depreciation was recognized at all because the net book value was reduced to the salvage value during the fourth year

Year	Beginning Net	x	Double the	=	Depreciation	Ending Net
Book Value	Straight-	Expense	Book Value
	line Rate
1	150000	x	40%	=	60000	90000
2	90000	x	40%	=	36000	54000
3	54000	x	40%	=	21600	32400
4	32400	x	40%	=	12960 (use $8400)	24000
5	19440	x	40%	=	7776 ( use $0)	24000