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    akbkarma's Avatar
    akbkarma Posts: 6, Reputation: 1
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    #1

    Jun 1, 2009, 04:04 PM
    Double Declining Method
    A company uses the double-declining method. It acquires a long lived asset for $200,000 and assigns a $20,000 salvage to it. How much of its cost will be allocated to 2009 assuming the asset was placed in service 7/01/08 and has a 5 year life?

    I got that the Declining Rate is 40 %, since the asset was placed in service on 7/1/08, the total allocated would be $33,333.35 for 2008. $200,000 - $33,333.35 = $166,666.65. 40% of $166,666.65 is $66,666.67. So the answer would be $66,666.67 would be allocated to 2009? Can someone please help me and tell me if this is correct, if not can you please explain to me what I did wrong. Thank you in advance. This book is horrible and doesn't explain much.
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Jun 1, 2009, 05:29 PM

    Yr1 = $200,000 * 40% * 6/12 = $40,000 for 6 months of the year (Jul-Dec). Remaining Book Value = $200,000 - 40,000 = $160,000
    Yr2 =$160,000 * 40% = $64,000 Depreciation Expense

    You do not use the salvage value in your computations
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