On January 1,2011,Petrel Shipping Company bought equipment that cost $65,000 with an estimated useful life of 10 years and an estimated salvage value of $5,000.The company uses the double-declining balance method of depreciation.What will be the BOOK VALUE of the asset on December 31,2012?

Question

Quizplus · Accepted Answer

The double-declining balance method of depreciation involves doubling the straight-line depreciation rate. The straight-line depreciation rate for an asset with a 10-year life is 10%. Doubling this gives a depreciation rate of 20% per year. For the first year (2011), the depreciation expense is 20% of $65,000, which is $13,000. This leaves a book value of $52,000 ($65,000 - $13,000) at the end of 2011. For the second year (2012), the depreciation expense is again 20% of the new book value, which is 20% of $52,000 = $10,400. Subtracting this from the book value at the end of 2011 gives a new book value of $41,600 ($52,000 - $10,400) at the end of 2012.

On January 1,2011,Petrel Shipping Company Bought Equipment That Cost $65,000