Question

Marlow Company purchased a point of sale system on January 1 for $7,000. This system has a useful life of 5 years and a salvage value of $1,200. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

Answer 1

Answer:

$1,680

Explanation:

Data provided in the question:

Purchasing cost = $7,000

Useful life = 5 years

Salvage value = $1,200

Now,

Rate of depreciation using double declining method

= 2 × [ 1 ÷ Useful life ]

= 2 × [ 1 ÷ 5 ]

= 0.4

Therefore,

Depreciation expense for the year 1 = Rate of depreciation × Purchase cost

= 0.4 × $7,000

= $2,800

Thus,

Book value for the year 2 = cost - Depreciation expense for the year 1

= $7,000 - $2,800

= $4,200

Thus,

Depreciation expense for the year 2

= Rate of depreciation × Book value for the year 2

= 0.4 × $4,200

= $1,680