Assume Galaxy Sun Industries purchased a machine for $125,000 on January 1, 2014

Question

Assume Galaxy Sun Industries purchased a machine for $125,000 on January 1, 2014 which is expected to have a useful life of four years. At the end of its useful life, the salvage value of the machine is estimated to be $7,000. Galaxy Sun Industries' fiscal year ends each December 31. The company has elected to depreciate the machine usin the declining balance method at two times the straight-line rate. Using the data above, calculate the depreciation rate for the machine: Depreciation Rate = % = %

Explanation / Answer

Double declining depreciation = Base * Straight line depreciation rate *2

Straight line depreciation = 125000/4 i.e 31250

Straight line depreciation rate = 31250/125000 i.e 0.25 or 25%

Year Depreciation Expense Accumulated Depreciation Book Value 2014 62500 62500 62500 2015 31250 93750 31250 2016 15625 109375 15625 2017 8625 118000 7000

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