PDA

View Full Version : Double Declining Balance


sunshine22
Nov 5, 2008, 07:36 PM
On August 3, Srini Construction purchased special-purpose equipment at a cost of $1,000,000. The useful life of the equipment was estimated to be 8 years, with a residual value of $50,000.


Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention).

pready
Nov 6, 2008, 08:17 AM
First you need to figure out the Rate. To compute divide 1 by the number of years useful life, then double it.

1/8 =12.5% x2 = 25%

Next take the Remaining Book Value (RBV) of the Asset X 25% for Depreciation Expense each year. Being the First year is a partial year you need to take the result X 6/12 for one half year used.

$1,000,000 X 25% X 6/12 = $125,000
$1,000,000 - $125,000 = $875,000 RBV

YR 2 $875,000 X 25% = $218,750
$875,000 - $218,750 = $656,250 RBV

YR3 $656,250 X 25% =$164,062.5
$656,250 - $164,062.5 = $$92,187.50 RBV

And so on
Year 8 will be your last full year for Depreciation.

Year 9 you will figure out the Depreciation for 1/2 year with the Remaining Book Value not going lower than the Salvage Value. In other words take the Depreciation only to the Salvage Value of the Asset.