Seneca Valley owns a machine that it purchased on Jan 1, 2010 for $600,000. The machine had an estimated useful life of 10 years and an estimated residual value of $100,000. The company uses the double-declining balance method. The machine was sold on December 31, 2012 for $140,000. What is the depreciation rate for 2010?

Question

Quizplus · Accepted Answer

The double-declining balance method calculates depreciation at twice the straight-line rate. Straight-line rate would be calculated as ($600,000 - $100,000) / 10 years = $50,000 per year. Double that rate would be $100,000 per year. However, the machine was sold after only 3 years, so we need to calculate the depreciation rate for 2010 only. Using the double-declining balance method, the machine's book value at the beginning of 2010 would be $600,000. Depreciation would be calculated as $600,000 x 2 / 10 years = $120,000. Therefore, the depreciation rate for 2010 would be $120,000 / $600,000 = 20%.

Seneca Valley Owns a Machine That It Purchased on Jan