Question

Short Exercise 9-5
Double-Declining-Balance Method

Sunburn Fitness Center purchased a new step machine for $8,250. The apparatus is expected to last four years and have a residual value of $750. The step machine is depreciated using the double-declining-balance method.

How much would depreciation expense be in each year? If required, round your answers to the nearest cent.

Year 1:	$
Year 2:	$
Year 3:	$
Year 4:	$

Answer 1

Double-Declining-Balance Method

Depreciation = 2 * SLM rate * Book value at the beginning of the year

SLM rate = 1 / useful life = 1 / 4 years = 25 %

Year	Net Book Value at the beginning	Depreciation working	Depreciation Amount
1	$8,250	2 * 25 %* $8,250	$4,125
2	($8,250 - $4,125) = $4,125	2 * 25 %* $4,125	$2062.50
3	($4,125 -$2062.50) =$2062.50	2 * 25 %* $2,062.50	$1,031.25
	($2062.50- $1,031.25) =$1,031.25	$1,031.25 - $750 (Note)	$281.25
	Total		$7,500

Note : Depreciation under double-declining-balance method  ceases when net book value becomes equal to residual value. That means maximum total depreciation under DDB method =  Purchase cost - Residual value ie $8,250 - $750 = $7,500