Question

In early January 2016, NewTech purchases computer equipment for $190,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $44,000.

Prepare a table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Answer 1

Computation of Depreciation and book value under doublr declining balance depreciation
	Depreciation for the period			End of Period
	Beginning of period Book Value	Depreciation Rate(%)	Depreciation Expense	Accumulation Deprciation	Book Value
First Year	1,90,000	50%	95,000	95,000	95,000
Second Year	95,000	50%	47,500	1,42,500	47,500
Third Year	47,500	50%	3,500	1,46,000	44,000
Fourth Year	44,000	50%	-	1,46,000	44,000
Depreciation rate under double decline method
= 2 × Straight-line depreciation rate
= 2 X 25%
= 50%
Straight Line Depreciation rate = 1/4 = 25%
Maximum amount of Accumulation Depreciation
= 190,000-44,000
= 146,000
Depreciation in third year is restricted to $ 3,500 because it reaches maximum amount of depreciation
In fourth year is no depreciation