00:01
In the question, cutter enterprise had following information, that is, they purchased an equipment for $72 ,000 on 1st january 2018.
00:10
The expected life of the equipment is of 5 years and the residual value at the end of that life is of 6 ,000.
00:18
And the depreciation is to be calculated on the basis of double declining balance method.
00:35
Double declining balance method.
00:41
Now in double declining balance method, the rate of depreciation is just like straight line method, but it is twice of that.
00:52
So rate of depreciation will be twice of straight line method.
01:10
But there is some twist.
01:12
That is while calculating straight line method, we consider this residual value and what we do, we less this amount from the equipment and find the depreciation.
01:22
Value but in case of double declining method when we calculate this s ldp we can say that this straight line method depreciation then what we are going to use we are going to use the only our equipment cost and that is 72 ,000 and the total life that it has is of five years so each year the depreciation should be of 14 ,400 so this should be the per year depreciation ignoring the residual value okay so if we calculate this rate this will be 14400 upon 72 ,000 into 100 and this comes to 20 percent therefore the rate of depreciation as per for double declining balance method will be what will be the twice of the depreciation that we have calculated as per straight line method ignoring residual value that is the more important that we have to ignore the residual value so this will be twice of 20 % that gives us 40 % that means the rate of depreciation should be 40 % now what we will do we will be preparing a chart for the depreciation here the first column is of the year then the beginning book value then the depreciation rate depreciation expenses accumulated depreciation and ending book value so at the beginning of the year the cost of the equipment or the value of the equipment was of 72 ,000 we have calculated the depreciation rate as per double declining balance method to be 40 percent so this depreciation expense will be coming 72 000 40 percent and that is 28 ,800 so 28 800 we don't have any previous depreciation balance with us so the accumulated depreciation will be same 28, 800.
03:32
Now the ending book value will be what will be the opening book value less the depreciation expense.
03:40
So 72 ,000 less 28 ,800.
03:43
This gives us 43 ,200.
03:52
For the 2019, the opening book value will be the ending book value of 2018.
03:59
So this gives us 43 ,200.
04:02
Again, the rate of depreciation will be 40%.
04:04
So, deprecision will be 40%.
04:04
So, depreciation expense is going to come 17 ,280.
04:12
Now the accumulated depreciation will be what? this year's depreciation is 17 ,280, but the previous year's depreciation was of 28 ,800.
04:22
So this 28 ,800 plus 17 ,280, this gives us 46080.
04:30
And the ending book value for 2019 will be the opening book value less the current year's depreciation that means 43 ,200 less 17 ,080 and this gives us 25 -290...