Question

In early January 2015, NewTech purchases computer equipment for $170,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $34,000.

Prepare a table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation. (Enter all amounts positive values.)

Answer 1

Depreciation is calculated under double-declining-balance is as follows:

Depreciation p. a. = 1/4 Years * 2 *100

= 50%

Years		$
2015	Cost Price	170,000
	Less:Depreciation ($170,000* 50%)	85,000
2016	Book Value	85,000
	Less:Depreciation ($85,000* 50%)	42,500
2017	Book Value	42,500
	Less:Depreciation($42,500 - $34,000)	8,500
2018	Book Value	34,000
	Less:Depreciation ($34,000 - $34,000)	0
End 2018	Book Value	$34,000

Note: Generally the deprecialtion is calculated at the end of the useful year by taking the difference between begining book value and salvage value. But book value should not go below the salvage value,and here. the book value is going below $34,000 in the third year. So deprecistion for third year is calculated by taking the difference between begining book value and salvage value and depreciation forth year will remain zero.