Accounting Made Simple 22

Question 1

1. What are the other GAAP accepted DEPRECIATION METHODS?

Answer 1

a. DOUBLE DECLINING BALANCE

b. UNITS OF PRODUCTION

Question 2

2. What does the DOUBLE DECLINING BALANCE DEPRECIATION METHOD consist of?

Answer 2

It consists of multiplying the remaining net book value by a given percentage each year. The percentage used is equal to DOUBLE THE PERCENTAGE that would be used in the FIRST YEAR OF STRAIGHT LINE DEPRECIATION.

Question 3

3. Example: Checklist Construction purchases 10k of equipment, to be depreciated over 5 years. Using Straight Line, they would be depreciating 20% of the value (100% / 5 years) in the FIRST YEAR. Thus, the DOUBLE DECLINING BALANCE will use:

Answer 3

40% depreciation EVERY YEAR (2 x 20%).

Question 4

4. The DOUBLE DECLINING BALANCE DEPRECIATION of the first four years would be:

Answer 4

1. 10k x 40%=4000
2. 6k x 40%= 2.400
3. 3,600 x 40%= 1440
4. 2160 x 40%= 864

Question 5

5. Because the equipment is being depreciated over 5 years, they would record __________on the 5th year.

Answer 5

$1,296 (2,160 - 864), in order to reduce the asset’s NET BOOK VALUE to ZERO.