Question

A video-recording system was purchased 4 years ago at a cost of $37,000. A 5-year recovery period and DDB (Double Declining Balance) depreciation have been used to write off the basis. The system is to be replaced this year with a trade-in value of $5,000. What is the difference between the book value and the trade-in value

Answer 1

Answer:

The trade in value is higher than the book value by $ 205

Explanation:

Computation of Book value

In a double declining balance method of depreciation, the rate of depreciation is double the straight line rate and is depreciated on a declining balance.

Cost of Equipment                                                                            $ 37,000

Estimated useful life ( Recovery Period)                                             5 years

Straight Line Depreciation rate                                                            20 %

Double declining Method depreciation  rate                                      40 %

Cost                                                                                                     $ 37,000

Depreciation for year 1   at 40 %                                                        $(14,800)

Depreciable basis for year 2                                                              $ 22,200

Depreciation for year 2   at40 %                                                       $ ( 8,880)

Depreciable basis for year 3                                                              $  13,320

Depreciation for year 3   at 40 %                                                        $ (5,328)

Depreciable basis for year 4                                                               $   7,992

Depreciation for year 4   at 40 %                                                        $    3,197)

Depreciable basis for year 5                                                                $  4,795

The depreciable basis for year 5 is the net book value after 4 years

The trade value is                                                                                  $ 5,000

The trade in value is higher by                                                             $     205