Question

Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost $870,000. The estimated residual value of the building is $57,000 and it has an expected useful life of 20 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year

Answer 1

$73,170

Step-by-step explanation:

The double declining-balance depreciation method of depreciation is otherwise known as Reducing Balance Method.

Depreciation Expense = 2 × SLDP × BVSLDP

WHERE,

SLDP = 100 ÷ Number of useful life

Therefore,

SLDP = 100 ÷ 20

= 5 %

Depreciation for 1st year

Depreciation Expense = 2 × 5 % × ($870,000 - $57,000)

= $81,300

Depreciation for 2nd year

Depreciation Expense = 2 × 5 % × ($870,000 - $57,000 - $81,300)

= $73,170