A machine costing $85,000 with a 5-year life and $5,000 residual value was purchased January 2, 2011. Computed depreciation for the first year, using the double declining-balance(DDB) method would be what?
To compute the depreciation for the first year using the double declining-balance (DDB) method, we need to know the useful life, the cost of the asset, and the salvage value.
In this case, we have the following information:
- Cost of the machine: $85,000
- Useful life: 5 years
- Salvage value: $5,000
The DDB method involves multiplying the straight-line depreciation rate by 2. The straight-line depreciation rate is calculated by dividing 1 by the useful life. However, the DDB method continues until the depreciation amount reaches the salvage value.
To calculate the depreciation for the first year, follow these steps:
Step 1: Calculate the straight-line depreciation rate.
Straight-line depreciation rate = 1 / Useful life
Straight-line depreciation rate = 1 / 5
Straight-line depreciation rate = 0.2
Step 2: Calculate the DDB depreciation rate.
DDB depreciation rate = Straight-line depreciation rate x 2
DDB depreciation rate = 0.2 x 2
DDB depreciation rate = 0.4
Step 3: Calculate the depreciation expense for the first year.
Depreciation expense = (Cost - Accumulated depreciation) x DDB depreciation rate
In the first year, since it is the first year of the asset's life, the accumulated depreciation is 0.
Depreciation expense = (Cost - 0) x DDB depreciation rate
Depreciation expense = (Cost) x DDB depreciation rate
Depreciation expense = $85,000 x 0.4
Depreciation expense = $34,000
Therefore, the computed depreciation for the first year using the double declining-balance (DDB) method would be $34,000.