Question

Problems 7-12 use the following information:  A firm purchased a new piece of equipment with an estimated useful life of five years.  The cost of the equipment was $55,000. The salvage value is estimated to by $5,000 at the end of year 5.

Using the Double-Declining Balance method of depreciation, what is the value of depreciation for year 5?

	A.	2,128
	B.	5,000
	C.	2,851
	D.	7,920
	E.	7,128

Answer 1

Correct answer is option A.2128

CALCULATION OF DEPRECIATION AT YEAR 5 AS PER DOUBLE DECLINING BALANCE METHOD

Year	Book Value Beginning	Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining	Net Book Value End
1	$ 55,000	$ 22,000	$ 33,000
2	$ 33,000	$ 13,200	$ 19,800
3	$ 19,800	$ 7920	$ 11,880
4	$ 11,880	$ 4752	$ 7128
5	$7128	2128*	0

Stright Line Depreciation Rate = 1/5=20%

5th year depreciation = (55,000-5,000)-(22,000+13,200+7920+4752) = 2128