Question

The machine that was used to produce notebooks cost $750,000 when it was purchased new one year ago. It has an expected life span of 10 years. The income statement showed the straight line deprecation rate as 10%.

Using double declining balance depreciation, the book value of the machine at the end of year two is __________.

a.)$330,000

b.)$480,000

c.)$600,000

d.)$150,000

Answer 1

Cost	750,000
Life	10
Double Declining depreciation rate	20%	(1/10 x 2 )
Depreciation for Year 1	150,000	(750,000 x 20% )
Depreciation for Year 2	120,000	( 750,000 - 150,000 ) x 20%
Book value of the machine at the end of year 2	$480,000	( 750,000 - 150,000 - 120,000 )
Correct answer is option b ( i.e. $ 480,000 ) .