A company purchased a delivery truck for $60,000. It is estimated that the truck will have a $10,000 residual value at the end of its estimated 5-year useful life. If the company uses the double diminishing-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

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Quizplus · Accepted Answer

The double declining balance method of depreciation involves doubling the straight-line depreciation rate. The straight-line depreciation rate for a 5-year useful life is 20% (100% / 5 years). Doubling this gives a depreciation rate of 40% per year. In the first year, the depreciation would be 40% of $60,000, which is $24,000. This leaves a book value of $36,000 ($60,000 - $24,000). In the second year, the depreciation would again be 40% of the remaining book value, which is 40% of $36,000, equaling $14,400.

A Company Purchased a Delivery Truck for $60,000