Question

Ferrils Grill purchased restaurant equipment on January 1st 2018 for 55,000 dollars. Residual value at the end of the estimated 10-year service life is expected to be $3,000. What is the balance in the accumulated depreciation that ferrills Grill will report at the end of the second year (12/31/2019) assuming the firm uses double declining balance method for depreciation ?

18,720

18,000

19,800

11,000

Answer 1

Answer: 19,800

Workings:

1. Double declining depreciation rate = 100%/useful life of asset = (100%/10) x 2 = 20%

2. First year depreciation = Book value the the beginning of 1st year x depreciation rate = 55,000 x 20% = 11,000

3. Book value at the end of first year = Book value at the beginning of first year - Depreciation for the year = 55,000 - 11,000 = 44,000

4. Second year depreciation = Book value at the beginning of second year x Depreciation rate = 44,000 x 20% = 8,800

5. Accumulated depreciation at the end of second year = Depreciation Expense for the first year + Depreciation Expense for the second year = 11,000 + 8,800 = 19,800

Explanation:

First, Divide “100%” by the number of years in the asset's useful life, this is your straight-line depreciation rate. Then, multiply that number by 2 and that is your Double-Declining Depreciation Rate. In this method, depreciation continues until the asset value declines to its salvage value. And depreciation is calculated on the book value each year.

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