Seall-Test Ltd. owns a machine that it purchased on Jan 1, 2019 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, 2021 for $140,000. What was the depreciation expense for 2020?

Question

Quizplus · Accepted Answer

The declining balance method is used with a rate of 20%. This means that the depreciation for year 1 is calculated as $600,000 x 20% = $120,000. The net book value at the end of year 1 is $480,000 ($600,000 - $120,000). The depreciation for year 2 is then calculated as $480,000 x 20% = $96,000. Therefore, the depreciation expense for 2020 is $96,000 (which is the depreciation for year 2).