Question

Prime, Inc., purchases $100,000 in construction machinery on January 1, Year 1. The useful life is estimated to be 8 years, and the residual value is estimated to be $20,000. What will be the depreciation rate if the company uses the double-declining-balance method?

Answer 1

Step-by-step explanation:

The computation of the depreciation rate by using the double-declining-balance method is shown below:

= One ÷ useful life

= 1 ÷ 8

= 12.5%

In double declining method, the depreciation would be double of straight-line method that means

= Two × depreciation rate

= 2 × 12.5

= 25%

The purchase cost, the residual value is not relevant to find out the depreciation rate. Hence, it would be ignored