Question

A high-precision programmable router for shaping furniture components is purchased by Henredon for $190,000. It is expected to last 12 years and have a salvage value of $5,000. Calculate the depreciation deduction and book value for each year. For this question, you are NOT allowed to solve the problem using Excel functions (you may use only to check your answers).

c.)Using double declining balance depreciation. Show your calculations at least for year 1 to get credit.

EOY	dt	Bt
1
2
3
4
5
6
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8
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12

i. By what amount did the book value differ from the net market value at the end of 12 years in this case?

Answer 1

Depreciation rate as per Straight line method (1/12 years)			8.33333333%
Depreciation rate as per double declining balance (8.33333333%*2)			16.6666667%
Under double declining balance, Book value never below the salvage value of assets
Year	Book value at Beginning of year	Depreciation expense (Beginning balance * 16.6666667%)	Book value at end of year
1	190,000.00	31,666.67	158,333.33
2	158,333.33	26,388.89	131,944.44
3	131,944.44	21,990.74	109,953.70
4	109,953.70	18,325.62	91,628.09
5	91,628.09	15,271.35	76,356.74
6	76,356.74	12,726.12	63,630.62
7	63,630.62	10,605.10	53,025.51
8	53,025.51	8,837.59	44,187.93
9	44,187.93	7,364.65	36,823.27
10	36,823.27	6,137.21	30,686.06
11	30,686.06	5,114.34	25,571.72
12	25,571.72	4,261.95	21,309.76
By what amount did the book value differ from the net market value at the end of 12 years in this case?
Book value at end of 12 year			21,309.76
Market value at end of 12 year (Salvage value)			5,000.00
Difference between value			16,309.76