To illustrate double

# To illustrate double - 54,000 = 21,600 57,600 32,400 Year 3...

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To illustrate double-declining-balance depreciation, consider the truck that has a cost of \$90,000, an  expected salvage value of \$10,000, and a five-year useful life. The truck's net book value at  acquisition is also \$90,000 because no depreciation expense has been recorded yet. The straight- line rate for an asset with a five-year useful life is 20% (1 ÷ 5 = 20%), so the double-declining- balance rate, which uses the 200% multiple, is 40% (20% x 200% = 40%). The following table shows  how the double-declining-balance method allocates depreciation expense to the truck. Double-Declining-Balance Depreciation Beginnin g-of-Year Book Value Year 1 40% × \$90,000 = \$36,000 \$36,000 \$54,000 Year 2 40% ×
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Unformatted text preview: 54,000 = 21,600 57,600 32,400 Year 3 40% × 32,400 = 12,960 70,560 19,440 Year 4 40% × 19,440 = 7,776 78,336 11,664 At the end of an asset's useful life, the asset's net book value should equal its salvage value. Although 40% of \$11,664 is \$4,666, the truck depreciates only \$1,664 during year five because net book value must never drop below salvage value. If the truck's salvage value were \$5,000, depreciation expense during year five would have been \$6,664. If the truck's salvage value were \$20,000, then depreciation expense would have been limited to \$12,400 during year three, and no depreciation expense would be recorded during year four or year five....
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