Double Declining Balance Depreciation Calculation Example
Learn to calculate double declining balance depreciation for a machine with a cost of $7000, a useful life of 3 years, and a salvage value of $1000. Understand the depreciation amounts and ending bases for the first and second years. Adjustments are made to ensure the asset is fully depreciated by the end of the useful life.
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Presentation Transcript
Think Break #14 Machine costs $7000 with a useful life of 3 years and salvage value of $1000 1) What is the double declining balance depreciation for the 1styear? 2) What is machine s ending basis in 1styear? 3) What is the double declining balance depreciation for the 2ndyear? 4) What is machine s ending basis in 2ndyear?
Think Break #14 Answer Double declining balance depreciation rate RDB= 2 x (1/3) = 2/3 (= 66.67%) 1) Year 1 Depreciation = $7,000 x 2/3 = $4,667 2) Ending basis in 1styear = $7,000 $4,667 = $2,333 3) Year 2 Depreciation = $2,333 x 2/3 = $1,555 4) Ending basis in 2ndyear = $ 2,333 $1,555 = $788
Think Break #14 Answer Cannot take $1,555 depreciation in year 2 since implies ending basis < salvage value Set year 2 depreciation so asset fully depreciated during year 2 3) Year 2 Depreciation $2,333 $1,333 = $1,000 Depreciation = $1,333 4) Ending basis in 2ndyear = $ 2,333 $1,333 = $1,000
Think Break #14 Answer Beginning Basis 7,000 2,333 Ending Basis 2,333 778 1,000 1,000 Year 1 2 Depreciation 4,667 1,555 1,333 0 3 1,000
