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A video-recording system was purchased 2 years ago at a cost of $36,000. A 5-year recovery...

A video-recording system was purchased 2 years ago at a cost of $36,000. A 5-year recovery period and DDB (Double Declining Balance) depreciation have been used to write off the basis. The system is to be replaced this year with a trade-in value of $5,000. What is the difference between the book value and the trade-in value? The difference between the book value and the trade-in value is ______$ .

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Answer #1

Answer:

The difference between the book value and the trade-in value is $7960.

Explanation:

Cost price = $36000

Depreciation rate = (100 / useful life ) x 2

= (100 / 5) x 2 = 40%

Depreciation in first year = $36000 x 40% = $14400

Depreciation in second year = ($36000 - $14400) x 40% = $21600 x 40% = $8640

Total Accumulated depreciation = $14400 + $8640 = $23040

Book value = $36000 - $23040 = $12960

Difference between book value and Trade in value = $12960 - $5000 = $7960.

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