Declining Balance The cost of the asset 700000 The salvage v

Declining Balance

The cost of the asset: $7,000.00
The salvage value: $800.00
The life of the asset: 4 years

Calculate the Book Value to the Nearest One Dollar at End of Year 3. Please show work.

Solution

Declining Balance method depreciation rate calculated as follows -  

Rate = 1 - (Scrap / Cost of Machine)^1/Years

^{Rate = 1 - ( 800 / 7000 ) 1/4}

^{Rate = 1 - ( 0.11429 ) 1/4}

^{Rate = 1 - 0.58}

^{Rate = 0.42}

^{i.e. 42% is depreciation rate.}

Book Value at End of Year 3 is $1366.

Additional information :

Depreciation of year 4 by mathematical calculation ( 1366*42%) $574, but we reduce the depreciation amount and consider $566 only so that the closing WDV of year 4 $800 will be equal to salvage value $800.