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6 October, 17:05

A company purchased a POS cash register on January 1 for $5,600. This register has a useful life of 10 years and a salvage value of $420. What would be the depreciation expense for the second-year of its useful life using the double-declining-balance method?

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  1. 6 October, 17:17
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    The depreciation expense for the second-year of its useful life using the double-declining-balance method would be $896.

    Explanation

    Determine the depreciable cost.

    Depreciable cost = Acquisition cost - Salvage value

    Depreciable cost = 5,600 - 420

    Depreciable cost = $5180.

    Determine the annual depreciation expense.

    The annual depreciation expense = Depreciable cost / Useful life.

    The annual depreciation expense = 5180/10.

    The annual depreciation expense = $518.

    Determine the depreciation rate.

    Determine the depreciation rate = (The annual depreciation expense/Depreciable cost) * 100.

    Determine the depreciation rate = (518/5180) * 100.

    Determine the depreciation rate = 10%

    But since we are applying the double-declining-balance method, we multiply the rate by 2.

    So the applicable rate is 10 * 2 = 20%

    Determine the depreciation expense for the second year.

    Depreciation for 1st year = acquisition cost * rate.

    Depreciation for 1st year = 5600 * 20%.

    Depreciation for 1st year = $1120.

    Depreciation for 2nd year = Asset carrying value * rate.

    Depreciation for 2nd year = (5600 - 1120) * 20%

    Depreciation for 2nd year = 4480 * 20%

    Depreciation for 2nd year = $896.
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