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3 July, 16:14

Q 9.30: Voltage Industries, a calendar-year company, purchased equipment for $85,000 on January 2nd, 2017. The equipment's expected useful life was five years, and the expected salvage value was $5,000. What is the book value of the equipment on December 31st, 2018, if Voltage uses the double-declining-balance method?

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  1. 3 July, 16:26
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    The book value by December 31, 2018=$40,800

    Explanation:

    The expression for the depreciable cost is as follows;

    depreciable cost=Acquisition cost-salvage value

    where;

    acquisition cost=$85,000

    residual value=$5,000

    replacing;

    depreciable cost=85,000-5,000=$80,000

    depreciable cost=$80,000

    The annual depreciation can be expressed as;

    annual depreciation=depreciable cost/estimated life

    where;

    depreciable cost=$80,000

    estimated life=5 years

    replacing;

    annual depreciation=80,000/5=16,000

    annual depreciation=$16,000

    depreciation rate = (annual depreciation/depreciable cost) * 100

    depreciation rate = (16,000/80,000) * 100=20%

    double declining depreciation rate=20%*2=40%

    First year depreciation=85,000*20%=$17,000

    Second year depreciation = (85,000-17,000) * 40%=$27,200

    Accumulated depreciation by December 31, 2018=17,000+27,200=$44,200

    Book value=purchase cost-accumulated depreciation

    Book value=85,000-44,200=$40,800

    The book value by December 31, 2018=$40,800
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