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Double Declining-Balance problem?
Calculate the book value of a three-year-old machine that cost $260,000, has an estimated residual value of $26,000, and has an estimated useful life of four years. The company uses double declining-balance depreciation.
I can do the Straight-Line formula and Units-of-Production formula just fine but I can't figure this one out.
1 Answer
- ?Lv 66 years ago
Double declining balance depreciation uses a rate which is twice the straight line depreciation rate.
The straight line rate = 1/useful life = 1/4 = 25%, so the double declining rate is 50%.
This rate is applied to the net book value of the asset until it reaches the salvage value and then stops.
Year 1 260000 x 50% = 130000 nbv = 130000
Year 2 130000 x 50% = 65000 nbv = 65000
Year 3 65000 x 505 = 32,500 nbv = 32500
At the end of the third year the nbv is 32,500