Answer:
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
