Question

A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1, year 1. The increase in accumulated depreciation for year 2 using the double-declining balance method would be

Original cost × 85% × 50%.

Original cost × 50%.

Original cost × 50% × 50%.

Original cost × 85% × 50% × 50%.

Answer 1

Correct answer--------------Original cost × 50% × 50%.

Working note

When the life of asset is 4 years then the DDB rate will be 50%. So the the depreciation for second year will be 50% of the half of original cost of asset. This can be seen below with an example.

Double declining Method
A	Cost	$ 60,000
B	Residual Value	$ 6,000
C=A - B	Depreciable base	$ 54,000
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$ 13,500
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$ 60,000	50.00%	$ 30,000	$ 30,000	$ 30,000
2	$ 30,000	50.00%	$ 15,000	$ 45,000	$ 15,000

The increase in Year 2 accumulated depreciation is $15000 which is 50% of 30000.