Seally Corp. owns a machine that it purchased on Jan 1, 2010 for $600,000. The machine had an estimated useful life of 10 years and an estimated residual value of $100,000. The company uses the declining balance method with a rate of 20%. The machine was sold on December 31, 2012 for $140,000. What was the depreciation expense for 2011?

Question

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The declining balance method calculates depreciation by applying a constant rate to the book value at the beginning of each year. For 2011, the book value at the beginning of the year is $480,000 (after $120,000 depreciation in 2010). Applying the 20% rate gives a depreciation expense of $96,000 for 2011.