A company purchased factory equipment for $450,000. It is estimated that the equipment will have a $45,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

The depreciation expense for the second year will be $108000

Explanation:

The double declining balance method is an accelerated form of depreciation that charges a rate that is double of the straight line depreciation rate. The formula for depreciation under double declining balance method is,

Depreciation expense = 2 * SLDR * BV

Where,

The straight line depreciation rate = 100% / 5  =  20% or 0.2

Depreciation expense under Double Declining method

First Year = 2 * 0.2 * 450000  = $180000

Carrying value after Year 1 = 450000 - 180000 = $270000

Second Year = 2 * 0.2 * 270000 = $108000

Carrying value after Year 2 = 270000 - 108000 = $162000

$108,000

Explanation:

Double declining balance method depreciates assets at twice the rate of the straight-line method. This can be done as follows:

Depreciation rate = (1 ÷ 5) × 2 = 0.40, or 40%

Year 1 depreciation expenses = $450,000 × 40% = $180,000

Year 2 depreciation expenses = ($450,000 - $180,000) × 40% = $108,000

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