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Double Declining Balance Depreciation Calculation for Machine Assets

This article explores the double declining balance depreciation method for a machine costing $7,000 with a useful life of 3 years and a salvage value of $1,000. We calculate the depreciation for the first and second years, along with the ending basis for each year. The first-year depreciation is calculated to be $4,667, resulting in an ending basis of $2,333. In the second year, due to the salvage value constraint, we must adjust the depreciation to ensure the asset does not fall below its salvage value. The final depreciation and ending basis values are presented for clarity.

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Double Declining Balance Depreciation Calculation for Machine Assets

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  1. Think Break #13 Machine costs $7000 with a useful life of 3 years and salvage value of $1000 1) What is the double declining balance depreciation for the 1st year? 2) What is machine’s ending basis in 1st year? 3) What is the double declining balance depreciation for the 2nd year? 4) What is machine’s ending basis in 2nd year?

  2. Think Break #13 Answer Double declining balance depreciation rate RDB = 2 x (1/3) = 2/3 (= 66.67%) 1) Year 1 Depreciation = $7,000 x 2/3 = $4,667 2) Ending basis in 1st year = $7,000 – $4,667 = $2,333 3) Year 2 Depreciation = $2,333 x 2/3 = $1,555 4) Ending basis in 2nd year = $ 2,333 – $1,555 = $788

  3. Think Break #13 Answer Cannot take $1,555 depreciation in year 2 since implies ending basis < salvage value Set year 2 depreciation so asset fully depreciated during year 2 3) Year 2 Depreciation $2,333 – $1,333 = $1,000 Depreciation = $1,333 4) Ending basis in 2nd year = $ 2,333 – $1,333 = $1,000

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