Question

On January 1, year 1, London Corp. purchases equipment for $400,000. The equipment has a 5-year service life and a $50,000 residual value. London uses the double-declining-balance method of depreciation. What is the book value at the end of year 1?

Answer 1

Answer:

$240,000

Explanation:

To calculate the depreciation value using the double declining balance method we should only consider the purchase cost of the equipment and not the salvage value.

$400,000 / 5 years = $80,000 per year

Since we use the double declining balance method the depreciation for year 1 will be $80,000 x 2 = $160,000

So the book value at the end of year 1 will be $240,000 (= $400,000 - $160,000).