Question

Marlow company purchased a point of sale system on january 1 for $5,400. this system has a useful life of 10 years and a salvage value of $400. what would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

Answer 1

Under the double declining balance method, depreciation is twice or 200% of the straight line depreciation rate. Its computation is as follows:

Straight-Line Depreciation Percent = 100% /10 years = 10% / year.

Depreciation Rate = 2 x 10%

                              = 20% /year.

Depreciation for a Period = 20% x Book Value at Beginning of the Period of January 1

Depreciation for Period 1 (first year) = 20% x $5,400 = $1080

Depreciation for Period 2 (second year) = 20% x ($5,400- $1080)

                                                     = 20%($4320)

                                                     = $864