Question

Consider that a company bought a machine for 52714 dollars. This equipment is assumed to have a life of 7 years and a salvage value of 1000 dollars. Compute the remaining book value of this machine at the end of year 3 based on the declining balance depreciation method and assuming a factor of 1.9 - standard method, not using US depreciation tables. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas)

Answer 1

Declining balance method does not consider salvage value.

Straight-line method depreciation rate = 1/Useful life = 1/7

Declining balance (DB) method depreciation rate = Depreciation factor x SLM rate = 1.9 x (1/7) = 0.27

In year 1,

Annual depreciation ($) = 52714 x 0.27 = 14232.78

Ending book value ($) = 52714 - 14232.78 = 38481.22

In year 2,

Annual depreciation ($) = 38481.22 x 0.27 = 10389.93

Ending book value ($) = 38481.22 - 10389.93 = 28091.29

In year 1,

Annual depreciation ($) = 28091.29 x 0.27 = 7584.65

Ending book value ($) = 28091.29 - 7584.65 = 20506.64