A forklift is purchased for $17,000. The truck is expected to be of use to the company for 6 years, after which it will be sold for $3,500. Calculate the depreciation charge and book value for each when a double declining balance (DDB) method is used.

The depreciation charges and book value for each year are as follows:

Year        Depreciation charges ($)      End year book value ($)

  1                            5,668                                      11,332

  2                            3,778                                      7,554

  3                            2,519                                       5,036

  4                             1,679                                       3,357

  5                              1,119                                       2,238

  6                           (1,262)                                      3,500

Explanation:

Note: See the attached excel file for the calculation of depreciation charge and book value for each of the 6 years assuming double-declining balance (DDB) method.

A double-declining-balance refers to a depreciation method that depreciates an asset twice the rate of the straight line depreciation method.

In the attached excel file, the depreciation rate used is calculated as follows:

Straight line depreciation rate = 1 / Number of years of operating

activities = 1 / 6 = 0.1667, or 16.67%

Double-declining depreciation rate = Straight line depreciation rate * 2

= 16.67% * 2 = 33.34%

The 33.34% double-declining depreciation rate is therefore used in the attached excel file table.

Note:

The depreciation charge is negative, i.e. -$1,262, the residual value of $3,500 which is greater than the beginning book value in Year 6 of $2,238 has to be considered. Therefore, the Year 6 depreciation expenses is calculated as follows:

Year 6 depreciation expenses = Beginning book value in Year 6 - Residual value = $2,238 - $3,500 = -$1,262