Question

Using the Double Declining Balance method to calculate depreciation, which of the following statements is true:

a.      Depreciation is calculated taking the cost excluding salvage value, divided by the number of years of anticipated service, and multiplying by 2.

b.      Depreciation is calculated using the cost divided by the number of estimated years of service, multiplying by 2, posting this amount, and recalculating the depreciation annually based on the balance left each year until the only balance is the salvage cost.

c.      Depreciation is calculated using the accelerated method based on total cost divided by years of service, times 2.

d.      Depreciation is calculated using the total purchase price divided by the number of estimated years of service.

Answer 1

b.      Depreciation is calculated using the cost divided by the number of estimated years of service, multiplying by 2, posting this amount, and recalculating the depreciation annually based on the balance left each year until the only balance is the salvage cost.

Ex.

Cost = $100,000

Life of asset = 10 years

Salvage value = $10,000

Depreciation for Year 1 = ($100,000/10)x2

= $20,000

Depreciation For Year 2 = ($80,000/10)x2 {less$ 20,000 depreciation for last year}

= $16,000