A building acquired at the beginning of the year at a cost of $1,375,000 has an estimated residual value of $250,000 and an estimated useful life of 40 years. Determine (A) the double-declining-balance rate and (B) the double-declining-balance depreciation for the first year.

a. 5%

b. $68,750

Explanation:

The computation is shown below:

a. The double-declining balance rate would be

= One : estimated useful life

= 1 : 40 years

= 0.025 or 2.5%

Now the rate is double So, 5%

b. In year 1, the original cost is $1,375,000, so the depreciation is $after applying the 5% depreciation rate is $68,750

In mathematically, it would be

= $1,375,000 * 5%

= $68,750