Q 9.30: Voltage Industries, a calendar-year company, purchased equipment for $85,000 on January 2nd, 2017. The equipment's expected useful life was five years, and the expected salvage value was $5,000. What is the book value of the equipment on December 31st, 2018, if Voltage uses the double-declining-balance method?

The book value by December 31, 2018=$40,800

Explanation:

The expression for the depreciable cost is as follows;

depreciable cost=Acquisition cost-salvage value

where;

acquisition cost=$85,000

residual value=$5,000

replacing;

depreciable cost=85,000-5,000=$80,000

depreciable cost=$80,000

The annual depreciation can be expressed as;

annual depreciation=depreciable cost/estimated life

where;

depreciable cost=$80,000

estimated life=5 years

replacing;

annual depreciation=80,000/5=16,000

annual depreciation=$16,000

depreciation rate = (annual depreciation/depreciable cost) * 100

depreciation rate = (16,000/80,000) * 100=20%

double declining depreciation rate=20%*2=40%

First year depreciation=85,000*20%=$17,000

Second year depreciation = (85,000-17,000) * 40%=$27,200

Accumulated depreciation by December 31, 2018=17,000+27,200=$44,200

Book value=purchase cost-accumulated depreciation

Book value=85,000-44,200=$40,800

The book value by December 31, 2018=$40,800