Question

Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:

Select one:

a. $54,000

b. $16,000

c. $42,000

d. $36,000

Answer 1

Solution :

The Answer is (a) $ 54,000.

Working :

Rate of Depreciation as per Double Decline Method = (100% / Useful Life) * 2

= (100% / 5 Years) * 2

= 40%.

October 1, Year 1 to September 30, Year 2:

Beginning Book Value = $100,000

Depreciation Expense = 40% * $100,000
Depreciation Expense = $40,000

Ending Book Value = $100,000 - $40,000
Ending Book Value = $60,000

October 1, Year 2 to December 31, Year 2:

Beginning Book Value = $60,000

Depreciation Expense = 40% * $60,000 * 3/12
Depreciation Expense = $6,000

Ending Book Value = $60,000 - $6,000
Ending Book Value = $54,000

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