Farr Company purchased a new van for floral deliveries on January 1, 2013. The v

Question

Farr Company purchased a new van for floral deliveries on January 1, 2013. The van cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2013? A) $9,600 B) $7,200 C) $14,400 D) $19,200
Farr Company purchased a new van for floral deliveries on January 1, 2013. The van cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2013? A) $9,600 B) $7,200 C) $14,400 D) $19,200
Farr Company purchased a new van for floral deliveries on January 1, 2013. The van cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2013? A) $9,600 B) $7,200 C) $14,400 D) $19,200

Explanation / Answer

Solution:

Correct Answer is D) $19,200

Under double declining method, the depreciation is calculated by multiplying the book value at the beginning of year by a double declining rate of depreciation..

Double Declining Rate of Depreciation is calculated by multiplying 2 into Straight LIne Depreciation Rate

i.e. Double Declining Rate of Depreciation = Straight Line Depreciation Rate x 2

Straight Line Depreciation = 1/5 = 0.20 or 20%

Double Declining Depreciation Rate = 20% x 2 = 40%

Depreciation Expenses for year 2013 = Beginning Value of Van x Double Declining Depreciation Rate = $48,000 x 40% = $19,200

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