A new piece of equipment costs 18000 with residual value of

A new piece of equipment costs $18,000 with residual value of $600 and an estimated useful life of five years. Assuming twice the straight-line rate, the book value at the end of year 2 using the declining balance method is

Solution

Annual straight-line depreciation = (cost – salvage value) / life in years

= ($18,000 – 600)/5 = 3480$

The formula for double declining balance is:

Annual depreciation = Book value * 100% / life * 2

or

Annual depreciation = Book value * 200% / life

3480 =book value *2/5
book value = 8700$