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9 May, 17:18

A piece of equipment was acquired on January 1, 2018, at a cost of $36,000, with an estimated residual value of $6,000 and an estimated useful life of six years. The company uses the double-declining-balance method. What is its book value at December 31, 2019

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  1. 9 May, 17:28
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    Book value at 31 December 2019 = 16000

    Explanation:

    The double declining balance method is an accelerated form of depreciation. Under this method, the asset is depreciated more in the initial years and less in the later years of estimated useful life.

    The formula for depreciation expense per year under this method is,

    Depreciation expense = 2 * [ (Cost - Accumulated depreciation) / estimated useful life]

    Depreciation expense 2018 = 2 * [ (36000 - 0) / 6]

    Depreciation expense 2018 = 12000

    Depreciation expense 2019 = 2 * [ (36000 - 12000) / 6]

    Depreciation expense 2019 = 8000

    Book Value = Cost - Accumulated depreciation

    Book Value = 36000 - (12000 + 8000)

    Book value at 31 December 2019 = 16000
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