Use the double-declining-balance method of depreciation. Round to the nearest dollar.
-Metal Fabricators buys a milling machine for $3,500 and estimates its useful life at 4 years and its
Salvage value at $350. What is the amount of depreciation each year?

Question

Quizplus · Accepted Answer

The double-declining-balance method of depreciation involves doubling the straight-line rate of depreciation. For a useful life of 4 years, the straight-line depreciation rate is 25% per year. Doubling this gives a depreciation rate of 50% per year. However, depreciation each year is calculated on the book value at the beginning of the year, not the original cost, and it cannot reduce the book value below the estimated salvage value. For the first year, 50% of $3,500 is $1,750. For the second year, the book value is $3,500 - $1,750 = $1,750, so 50% of that is $875. For the third year, the book value is $1,750 - $875 = $875, so 50% of that is $438. However, depreciating by another $438 in the fourth year would bring the book value below the salvage value of $350, so the depreciation in the fourth year is adjusted to bring the book value exactly to the salvage value, which is $88 ($875 - $788 = $88, where $788 is the book value at the beginning of the fourth year, not the depreciation amount).

Use the Double-Declining-Balance Method of Depreciation