Question

Submitted by Vishwanath on Mon, 07/08/2013 - 07:15

 Your company owns an asset with an original value of $1,000. This asset will be depreciated using the double declining balance method over the periodof 5 years.

What is the dollar value of the annual depreciation in year 2?
A.) $400B.) $144C.) $240D.) $86.40
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san

Mon, 07/08/2013 - 07:25

Ans is C

For straightline depreciation rate is 20 % (100/5)

Since it is mentioned that double declining 2*20=40%

 

In the first year depreciation is 1000*40/100 = 400

asset value end of first year 1000-400=600

2nd year depraciation value is 600*40/100 =240

Asset value end of the second year = 1000-(240+400)= 360

Here, the question is depreciation value in year 2 i.e 240

Answer is C

 

humanbeing2001

Mon, 07/08/2013 - 09:36

Thanks San. But if We proceed this way 129.6 would be left for the 5th year which is more than 86.4 of 4th Year. Does Double declining depreciation method recommends High valuue for the Ultimate year. I believe that Double Declining method is one of the Accerlated depreciation method which results in upfront loading of major depreciation and leaving gradually smaller amount for the end.

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cnppmp1

Thu, 07/11/2013 - 14:58

Double declining depreciation you need to calculate this way.

Lifecycle is 5 yeras , so the single line depreciation for 5 years would be =100%/5 = 20%, Then the double declining deprciation would be 40%.

Ans to your question ,

1st Year , 1000*40%=400

2nd year, (1000-400)* 40%= 600*40%= 240.

Ans) C

 

Regards

 

CN Patil