On January 1, of 20X1, Oriole Corp. purchased equipment for $160,000. The equipment has a useful life of 8 years with no residual value. In Years X1 through X2, Oriole used the double-declining-balance method of depreciation. At the start of 20X3, Oriole changes to the straight-line method of depreciation. What is the book value of the equipment at the end of year 3?

Question

Aden Mercer

Business

14 December, 08:52

On January 1, of 20X1, Oriole Corp. purchased equipment for $160,000. The equipment has a useful life of 8 years with no residual value. In Years X1 through X2, Oriole used the double-declining-balance method of depreciation. At the start of 20X3, Oriole changes to the straight-line method of depreciation. What is the book value of the equipment at the end of year 3?

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Armstrong · Answer 1

Net Book Value end of year X3 $ 80,000

Explanation:

Computation of depreciation for years X1 through X2.

Cost of equipment $ 160,000

Useful Life 8 years

Depreciation percentage under straight line method 12.5 %

Depreciation percentage under double declining method 25 %

Cost of equipment $ 160,000

Depreciation for Year X1 @ 25 % $ 40,000

Net Book Value as of end of year X1 $ 120,000

Depreciation for Year X2 @ 25 % $ 24,000

Net Book Value as of end of year X2 $ 96,000

Computation of depreciation cost for year X3

Depreciation for year X3 is on straight line method

Depreciable basis $ 96,000

Remaining useful life 6 years

Depreciation per year $ 96,000/6 $ 16,000

Computation of net book value end of year X3

Net Book Value as of end of year X2 $ 96,000

Depreciation for year X3 $ 16,000

Net Book Value end of year X3 $ 80,000