Question

Swifty Company purchased equipment for $1008000 on January 1, 2020, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $43000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2022 will be

Answer 1

Double declining balance is a method of depreciation which is used for the assets that are expected to lose their value in early times.

The formula for calculating depreciation by using double declining balance method is

Depreciation= 2*SLMR*BV

Where, SLMR = straight line method rate

BV = Book value of the aaset at the beginning of the period

In the question

Date of purchase of equipment= 01.01.2020

Cost of equipment =$ 1008000

Life of equipment = 3 years

Salvage value = $ 43000

So first we calculate SLMR I.e 100%/3 which comes to 33.33%(approx)

We have taken 100% as asset is going to be fully depreciate in 3 years.

The next step is to calculate depreciation by using the formula mentioned above

I.e Depreciation=2*SLMR* BV at the beginning of period

For 31.12.2020 ,

Depreciation = 2*33.33%*10,08,000

=$6,71,932

Book value as on 01.01.2021=10,08,000-6,71,932

= $3,36,068

For 31.12.2021

Depreciation= 2*33.33%*3,36,068

=$2,24,022

Book value as on 01.01.2022 = 3,36,068-2,24,022

= $1,12,046

For 31.12.2022

Depreciation =BV at the beginning of the period - Salvage value

=1,12,046-43,000

=$69,046

Note: There may be difference in values due to different decimal places or rounding of figures.