Question

The value of a machine was $400,000 when purchased new one year ago. It has an expected life of five years and the income statement shows the straight line depreciation rate as 20%.

Using double declining balance depreciation, what is the value of the machine at the end of year two?

Answer 1

Answer: $144,000

Calculations:

Depreciation rate = Depreciation rate of straight line x 2 = 20% x 2 = 40%

Double declining balance method (Partial)
Date	Beginning carrying value	x	Depreciation rate	=	Depreciation Expense	*Ending carrying value
Year 1	$400,000	x	40%	=	$160,000	$240,000
Year 2	$240,000	x	40%	=	$96,000	$144,000

*Ending Carrying value = Beginning carrying carrying value - Depreciation Expense

Thus, the value of the machine at the end of year two is $144,000