Question

A fleet of refrigerated delivery trucks is acquired on January 5, 2017, for \(830,000 with an estimated useful life of eight years and an estimated salvage value of \)75,000. Compute the depreciation expenses for the first three years using the double-declining-balance method.

Short answer

The depreciation expense for the first three years is $622,500.

Step-by-step solution

Double declining balance method

The declining-balance method of depreciation uses a depreciation rate that is a multiple of a straight-line rate, and applies it to an asset’s beginning book value.

Computation of depreciation expenses

$\begin{array}{rcl}\mathbf{Straight}\mathbf{}\mathbf{line}\mathbf{}\mathbf{rate}\mathbf{}& \mathbf{=}& \mathbf{}\mathbf{100}\mathbf{\%}\mathbf{}\mathbf{÷}\mathbf{}\mathbf{Useful}\mathbf{}\mathbf{life}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{100}\mathbf{\%}\mathbf{}\mathbf{ }\mathbf{÷}\mathbf{}\mathbf{8}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{12}\mathbf{.}\mathbf{5}\mathbf{.}\end{array}$

$\begin{array}{rcl}\mathbf{Double}\mathbf{}\mathbf{declining}\mathbf{}\mathbf{balance}\mathbf{}\mathbf{rate}\mathbf{}& \mathbf{=}& \mathbf{}\mathbf{2}\mathbf{}\mathbf{\times }\mathbf{}\mathbf{Straight}\mathbf{}\mathbf{line}\mathbf{}\mathbf{rate}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{2}\mathbf{\times }\mathbf{12}\mathbf{.}\mathbf{5}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{25}\mathbf{\%}\mathbf{.}\end{array}$

$\begin{array}{rcl}\mathbf{Depreciation}\mathbf{}\mathbf{expense}& \mathbf{=}& \mathbf{Double}\mathbf{}\mathbf{declining}\mathbf{}\mathbf{balance}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Beginning}\mathbf{}\mathbf{book}\mathbf{}\mathbf{value}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{25}\mathbf{\%}\mathbf{}\mathbf{}\mathbf{\times }\mathbf{}\mathbf{\$}\mathbf{830}\mathbf{,}\mathbf{000}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{\$}\mathbf{207}\mathbf{,}\mathbf{500}\mathbf{.}\end{array}$

Thus, the depreciation for the first three years is$\$622,500\left(\$207,500\times 3\right).$