Declining Balance
The cost of the asset: $7,000.00
The salvage value: $800.00
The life of the asset: 4 years
Calculate the Book Value to the Nearest One Dollar at End of Year 3. Please show work.
Declining Balance method depreciation rate calculated as follows -
Rate = 1 - (Scrap / Cost of Machine)1/Years
Rate = 1 - ( 800 / 7000 ) 1/4
Rate = 1 - ( 0.11429 ) 1/4
Rate = 1 - 0.58
Rate = 0.42
i.e. 42% is depreciation rate.
Particulars ( Year ) | Opening Balance of Asset | Depreciation @42% of opening balance | Closing Balance of Asset / WDV |
1 | $7000 | $2940 | $4060 |
2 | $4060 | $1705 | $2355 |
3 | $2355 | $989 | $1366 |
Book Value at End of Year 3 is $1366.
Additional information :
Depreciation of year 4 by mathematical calculation ( 1366*42%) $574, but we reduce the depreciation amount and consider $566 only so that the closing WDV of year 4 $800 will be equal to salvage value $800.
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