ReelGood Corp. purchased equipment on January 1, 2012 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Assuming the double-declining-balance depreciation method is used, what is the net book value (carrying value)of the asset on December 31, 2012?

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Quizplus · Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so double is 40%. Depreciation for 2012 is 40% of $275,000 = $110,000. Net book value at end of 2012 is $275,000 - $110,000 = $165,000.