Question

You have a combine that was purchased for $300,000, has a useful life of 10 years, and has a salvage value of $50,000. What is the value of the combine after subtracting two years of depreciation using (1) the triple declining balance method and (2) straight line depreciation method?

Answer 1

Purchase price of combine = $300,000

Useful life = 10 years

Savage valure = $50,000

1) TRIPLE DECLINING BALANCE METHOD:

Rate of depreciation per year as per straight line method = 1 / useful life = 1 / 10 = 10%

Rate of depreciation per year as per triple declining balance method = 3*Rate as per straight line balance method = 3*10% = 30%

YEAR	OPENING VALUE($)	RATE OF DEPRECIATION(%)	DEPRECIATION($)	ACCUMULATED DEPRECIATION($)	CLOSING VALUE($)
1	300,000	30	90,000	90,000	210,000
2	210,000	30	63,000	153,000	147,000

Value of combine after subtracting two years depreciation as per triple declining balance method = $147,000

2)STRAIGHT LINE DEPRECIATION METHOD:

Depreciation to be charged per year = (Book value - Salvage value) / Useful life

=(300,000 - 50,000) / 10

=$25,000 per year

Value of combine after subtracting two years depreciation as per straight line method = 300,000 - 25,000 - 25,000

= $250,000

Note: In triple declining balance method , asset is reduced upto its salvage value.