Answer:
Explanation:
Depreciation is the rate of the loss in value or decline of an asset over time until it reaches its salvage point where it is written off the books.
It is calculated either through the Straight Line Declining Balance method
(SLDB) or the Double declining balance method (DDB).
The DDB method (or accelerated depreciation) is twice the rate of depreciation of the SLDB.
Mathematically,
DDB = 2 x SLBR x NBV
where SLBR is the rate of depreciation using the straight line method = (100% / lifetime of asset)
NBV is the Net Book Value of the asset
From the question, after year 1,
Car Wash value = NBV - Depreciation
= $210,000 - (33.33% of $210,000)
=$210,000 - $70,000
= $140,000
Subsequent years would be
Year 2 = $140,000 - (33.33% x $140,000) = $93,333.33
Year 3 = $93,333 - (33.33% x $93,333) = $62,228
Year 4 = $62,228 - (33.33% x $62,222) = $ 41,481.3334
Year 5 = $41,481.3384 - ( 33.33% x $41,481) = $27,659.286
Year 6 = $27,659.286 - (33.33% x $27,659.286) = $18,440.156
In summary,
Year Initial book value Depreciation Actual Depreciation Net Book Value
1 $210,000 33.33% $70,000 $140,000
2 $174,000 33.33% $46,662 $93,338
3 $93,338 33.33% $31,109 $62,228
4 $62228 33.33% $20,740 $41,487.
5 $41,487 33,33% $13,827 $27,659
6 $27,659 33.33% $9,218 $18,440
