Depreciation

[Janelle101]

How do i calculate this problem?
A machine with a cost of $65,000 has an estimated residual value of $5,000 and a estimated life of 4 years or 18,000 hrs. what is the amount of depreciation for the second year, using the double-declining method at double the straight-line rate.

 

[tkhunny]

1) Ignore useless information: "18,000 hours"
2) Calculate amount to be depreciated. 65000 - 5000 = 60000
3) Calculate annual amount to be depreciated. 60000/4 = 15000
4) Calculate the percentage fo the depreciation to be used in the first year. 15000/60000 = 0.250
5) Double the rate. 2*0.250 = 0.500
6) Run off year 1
6a) 60000*0.500 = 30000 = Year 1 Depreciation Charge
6b) 60000 - 30000 = 30000 = Remaining Depreciation
6c) 65000 - 30000 = 35000 = Asset value end of first year.
7) Run off year 2
7a) 30000*0.500 = 15000 = Year 2 Depreciation Charge
7b) 30000 - 15000 = 15000 = Remaining Depreciation
7c) 35000 - 15000 = 20000 = Asset value end of second year.
8) Run off year 3
8a) 15000*0.500 = 7500 -- Now, just hold on here a minute. That's too low. We can tolerate only as low as 15000 = Year 3 Depreciation Charge
8b) 15000 - 15000 = 0 = Remaining Depreciation
8c) 20000 - 15000 = 5000 = Asset value end of third year.
9) Run off year 4 - No, wait! We were done last year.

That's how I'd do it.