2 On Jan 1 2015 equipment was acquired at a cost of 105000 h

2. On Jan. 1 2015, equipment was acquired at a cost of $105,000 has an estimated residual value of $5,000 and an estimated useful life of 5 years. Determine (a) annual straight-line depreciation,(b) double-declining-balance rate, and (c) double-declining balance depreciation for the every year (25 percent)

Solution

a)

Depreciation under straight line method

= (Purchase cost – Salvage value) / Useful life

= ($105,000 - $5,000) / 5

= $20,000 per year

b)

Depreciation rate under double-declining balance method

= [1 / Useful life] x 2

= [1 / 5] x 2

= 0.40 or 40%

c)

Double declining balance depreciation for each year at 25% (as given in question) is calculated below

Calculations	A = D of preceding year from year 2 to 5	B	C = A x B	D = A - C
Year	Book value at beginning of the year	Depreciation rate	Depreciation	Ending book value
1	105,000	25%	26,250	78,750
2	78,750	25%	19,688	59,062
3	59,062	25%	14,766	44,296
4	44,296	25%	11,074	33,222
5	33,222	25%	8,306	24,916