Base-Forward owns a machine that it purchased on Jan 1, 2019 for $600,000. The machine had an estimated useful life of 5 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 2021?

Question

Quizplus · Accepted Answer

The declining balance method of depreciation involves multiplying the book value of an asset at the beginning of the year by a fixed rate. Here, the rate is 20%. For the first year (2019), the depreciation expense is 20% of $600,000, which is $120,000. This leaves a book value of $480,000 at the start of 2020. For 2020, the depreciation expense is 20% of $480,000, which is $96,000, leaving a book value of $384,000 at the start of 2021. For 2021, the depreciation expense is 20% of $384,000, which is $76,800.

Base-Forward Owns a Machine That It Purchased on Jan 1