Question

SBS Company purchased a new machine on January 1, at a cost of $420,000. The machine has an expected useful life of four years and an expected salvage value of $40,000. The company expects to use the machine for 1,300 hours in the first year, 1,900 hours in the second year, and 900 hours in the third and fourth year, respectively.

(b) Calculate Depreciation Expenses for each year using Double-Declining-Balance Method

A working table is provided on the next page.

Year	Depreciation Expenses
1	$
2	$
3	$
4	$

Answer 1

Answer:

Double Declining Balance Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1/ 4 = 25%

Double Declining Balance Depreciation Rate = 2 * 25% = 50%

Depreciation for Year1 = $420,000 * 50% = $210,000
Depreciation for Year2 = ($420,000 - $210,000) * 50% = $105,000
Depreciation for Year3 = ($420,000 - $210,000 - $105,000) * 50% = $52,500
Depreciation for Year3 = $52,500 - $40,000 = $12,500

Year	Depreciation Expense	Carrying Value
0		420,000
1	210,000	210,000
2	105,000	105,000
3	52,500	52,500
4	12,500	40,000