Question

Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine is estimated to have a useful life of 8 years, and a residual value of $4,000. For units-of-production depreciation purposes, the machine is expected to produce 400,000 units. If Compatibility Services uses double-declining-balance depreciation, what is the net book value of the machine on December 31, 20X5?

Select one: A. $ 33,750 B. $ -0- C. $46,250 D. $ 30,000 E. $40,000

Answer 1

Annual depreciation as per straight line method=100%/8=12.5%/year

Hence depreciation as per double decline balance=2*Annual depreciation as per straight line method*Beginning value of each period

Year	Beginning value	Depreciation	Ending value
20X3	80,000	(2*12.5%*80,000)=$20,000	(80,000-20,000)=60,000
20X4	60,000	(2*12.5%*60,000)=15,000	(60,000-15,000)=45,000
20X5	45,000	(2*12.5%*45,000)=11250	(45,000-11250)=33,750

Hence net book value of the machine on December 31, 20X5=33,750