Answer: The amount of depreciation expense for Year 3 is $3,125.
Explanation: The double-declining method is otherwise known as the reducing balance method and is given by the formula below:
Double declining method = 2 X SLDP X BV
SLDP = straight-line depreciation percentage
BV = Book value
Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($25,000 - $5,000) / 4 years = $5,000 yearly depreciation expense.
Under the double-declining method, 100%/4years = 25%, then 25% multiplied by 2 to give 50%
At Year 1, 50% X $25,000 = $12,500
At Year 2, 50% X $12,500 ($25,000 - $12,500) = $6,250
At Year 3, 50% X $6,250 ($12,500 - $6,250) = $3,125 (the depreciation expense would stop at this stage since the amount falls below the residual value).
