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5 January, 00:21

Prime, Inc., purchases $100,000 in construction machinery on January 1, Year 1. The useful life is estimated to be 8 years, and the residual value is estimated to be $20,000. What will be the depreciation rate if the company uses the double-declining-balance method?

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  1. 5 January, 00:35
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    The computation of the depreciation rate by using the double-declining-balance method is shown below:

    = One : useful life

    = 1 : 8

    = 12.5%

    In double declining method, the depreciation would be double of straight-line method that means

    = Two * depreciation rate

    = 2 * 12.5

    = 25%

    The purchase cost, the residual value is not relevant to find out the depreciation rate. Hence, it would be ignored
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