On October 1, 2014, Holt Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 residual value at the end of its useful life. What is the book value of the plant asset on the December 31, 2014, statement of financial position assuming that Holt Company uses the double-declining-balance method of depreciation?

Question

Quizplus · Accepted Answer

Annual depreciation using double-declining-balance method is calculated by dividing the straight-line rate by 2 (100%/5 years/2) giving us a rate of 20%. Double that rate gives us the depreciation rate of 40%. Therefore, the depreciation expense for 2014 is $48,000 ($120,000 x 40%). The book value of the asset at the end of 2014 is calculated as follows: 
Cost: $120,000
Less: Accumulated Depreciation ($48,000) 
Book value (December 31, 2014): $72,000
Since the residual value of $30,000 is not considered in the computation of depreciation until the last year, the book value cannot be reduced by the residual value at this point. 
Therefore, the correct answer is C, $108,000.

On October 1, 2014, Holt Company Places a New Asset