Solution Straight-line Depreciation rate=51=0.2=20%
Declining Balance Rate=2×20%=40%
Depreciation=40%×500000=200,000
Then, Calculate the depreciation of the asset for the second year of it's life.
Declining rate is still 40%
Book value=Cost−Accumulated Depreciation=500,000−200,000=300,000Depreciation=40%×300,000=120,000
Third Year.
Book value=500,000−200,000−120,000=180,000Depreciation=40%×180,000=72,000
Fourth Year.
Book value=500,000−200,000−120,000−72,000=108,000Depreciation=40%×108,000=43,200
Fifth Year.
Book value=500,000−200,000−120,000−72,000−43,200=64,800Depreciation=40%×64,800=25,920
The depreciation calculated above will decrease the Book value of the asset below it's estimated residual value(64,800−25920=38880<54994.35 ).Therefore, depreciation would only be allowed up to the point where the Book value=Salvage value. This depreciation expense of9,805=(64,800−54,994.35)is allowed. Same procedure will be replicated for 9years.
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