On October 1 2017 Holt Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31 2017 balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation?

Question

Quizplus · Accepted Answer

Using the double-declining-balance method of depreciation, the annual depreciation rate is 40% (calculated as 100% divided by the estimated life of 5 years multiplied by 2). 
Therefore, the depreciation expense for 2017 is $48000 (calculated as $120000 multiplied by 40%). 
The book value of the asset at the end of 2017 is $72000 (calculated as $120000 cost minus $48000 depreciation expense). 
However, since the salvage value is $30000, the asset cannot be depreciated below that value. 
So, the book value of the asset on the December 31, 2017 balance sheet is $108000 (calculated as the higher of $72000 book value and $30000 salvage value).

On October 1 2017 Holt Company Places a New Asset