Question

On April 1, 2021, Parks Co. purchased machinery at a cost of $42,000. The machinery is expected to last 10 years and to have a residual value of $6,000. Required: Compute depreciation for 2021 and 2022 and the book value of the machinery at December 31, 2021 and December 31, 2022, assuming double-declining-balance method is used.

Answer 1

Answer:

• Depreciation for 2021 is $6,300 with book value of the machinery being $35,700.
• For 2022, Depreciation is $7,140 with book value of $28,560.

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

SLDP is 100%/10 years = 10%, then 10% multiplied by 2 to give 20%

At Year 2021, 20% X $42,000 = $8,400/yearly

Remember, the machinery was purchased on April 1, 2021, so 9 months depreciation would be accounted for as: 9/12 x $8,400 = $6,300.

So, the book value of the machinery is $42,000 - $6,300 = $35,700 at December 31, 2021

At Year 2022, 20% X $35,700 ($42,000 - $6,300) = $7,140

So, the book value of the machinery is $35,700 - $7,140 = $28,560 at December 31, 2022

Accumulated depreciation expense for Years 2021 to 2022, under this method, is $13,440 (addition of all the yearly depreciation).