Equipment costing $120,000 is being depreciated using the double declining balance method over 5 years. What is the depreciation expense for the second year?
Correct Answer
C) $28,800
Double declining rate = 2 ÷ 5 = 40%. Year 1: $120,000 × 40% = $48,000. Year 2: ($120,000 - $48,000) × 40% = $28,800
Why This Is the Correct Answer
The double declining balance method uses twice the straight-line rate (2 ÷ 5 years = 40%). Year 1 depreciation is $120,000 × 40% = $48,000. Year 2 applies the 40% rate to the remaining book value: ($120,000 - $48,000) × 40% = $72,000 × 40% = $28,800. This method accelerates depreciation by applying a constant percentage to the declining book value each year.
Why the Other Options Are Wrong
Option A: $19,200
$19,200 appears to be calculated using straight-line depreciation ($120,000 ÷ 5 = $24,000) with an incorrect adjustment. This ignores the double declining balance method's accelerated depreciation approach and the requirement to apply the rate to the declining book value.
Option B: $48,000
$48,000 is the correct first-year depreciation expense, not the second year. This error occurs when someone applies the 40% rate to the original cost ($120,000) for both years, failing to reduce the depreciable base by the previous year's depreciation.
Option D: $24,000
$24,000 represents straight-line depreciation ($120,000 ÷ 5 years). This method spreads the cost evenly over the asset's life, but the question specifically requires the double declining balance method, which accelerates depreciation in early years.
Memory Technique
Remember 'Double Declining = Declining Base': The rate doubles (2/n), but the BASE declines each year. Year 1: rate × original cost. Year 2+: rate × (original cost - accumulated depreciation).
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