Question

video-recording system was purchased 4 years ago at a cost of $41,000. A 5-year recovery period and DDB (Double Declining Balance) depreciation have been used to write off the basis. The system is to be replaced this year with a trade-in value of $7,000. What is the difference between the book value and the trade-in value?

The difference between the book value and the trade-in value is $__________

Answer 1

Answer:

DDB depreciation rate = 2 / 5 = 40%

Salvage value = $7,000

End of the year	Depreciation Amount = 0.4 * Previous year book value	Book Value = Previous year book value - Current year depreciation amount
0	-	41000
1	41000 * 0.40 = 16400	24600
2	24600 * 0.40 = 9840	14760
3	14760*0.40 = 5904	8856
4	8856*0.40 = 3542.40	5313.60
5	5313.60*0.40 = 2125.44	3188.16

The difference between the book value and the trade-in value = 8856 - 7000 = $1,856

The difference between the book value and the trade-in value is $1,856