Question

A pharmaceutical company purchased a machine with a life of six years and used the double-declining-balance method of depreciation. If the company had used the straight-line method of depreciation, how would the income statement in year 6 have differed?

Answer 1

Yes in both the method, depreciation value will be same this can be explained with an example

Suppose the cost of machine is $50000 its salvage value is $5000 and its useful life 6 years

So the straight line depreciation will be

Straight line depreciation = (cost asset - salvage value)/ useful life of asset

= ($50000 - $5000)/6

= $7500 for one year

Depreciation for 6 years = $7500 × 6 years = $ 45000

Therefore income will be $50000 - $45000 = $5000

Now we will the income of asset by double declining balance method , this is shown in the image below.