double declining balance method

CFA Level I FRA
#1

Purchase price=30000, salvage value=3000,useful life=8 yrs… what amount will be recorded as dep. in the double declining balance method in the first year

#2

Hello, you have to put [(2/useful life)*purchase price] =7500.

Correct me if I am wrong

#3

but why is salvage value not reduced?

#4

if u have a ti-ba II plus calc - there is a depr key and you can do all this on the calc.

check out the manuals.

#5

^respekt

#6

Hello Meee-

I was grinding through this over the weekend, so your question is timely.

The double declining method is not like straight line on several levels and this is one of the differences. For the DD method, you stop depreciating the asset once the asset = salvage value.

So the equation is 2/useful life *(asset value - accumulated depreciation). So the first year the depreciation will be 7500… there is no accumulated depreciation to subtract yet. This 7500 will be used as accumulated depreciation for the next year, so year two’s depreciation should be 2/8*(30,000-7,500) = 5,625

For year 3, you would add 7,500 and 5,625 and that would be the accumulated depreciation you would use to subtract from 30,000.

You will do this for 8 years until you reach the salvage value or stop when when you reach the salvage value.

For example, if going into year 6 your AD totals 26,980. The value of the asset would be 30,000-26,980, or 3,020. For year seven, you would just subtact 20 as depreciation expense, which would get you to 3,000, the salvage value of the asset. At this point, there is no more depreciation needed.

Hope this helps.

#7

thanks…so its just like WDV method…just u stop at salvage value