Question

Cost of asset: $10000

Useful life: 5 years

Salvage Value: $2000

Depreciation Method: DDB

a) What is the value of α? 0.4

b) What is the amount of depreciation for the second year of use of the asset? $2400

c) What is the book value of the asset at the end of the fourth year? $2000

Answer 1

a)Double declining depreciation rate = 2 /useful life

                 = 2/5

                 = .40 or 40%

b)

year	Depreciation expense	Book value at end of year
1	10000*.40 =4000	10000-4000=6000
2	6000*.40=2400	6000-2400= 3600

c)

year	Depreciation expense	Book value at end of year
1	10000*.40 =4000	10000-4000=6000
2	6000*.40=2400	6000-2400= 3600
3	3600*.40= 1440	3600-1440= 2160
4	2160*.40= 864	2160-864= 1296 (since book value at end of year 4 falls below minimum salvage value of $ 2000 .therefore depreciation for year 4 will be restricted so that book valye at year 4 = 2000. Depreciation for 4 = 2160-2000=160

Book value at year 4 = 2000