A video-recording system was purchased 4 years ago at a cost of $37,000. A 5-year recovery period and DDB (Double Declining Balance) depreciation have been used to write off the basis. The system is to be replaced this year with a trade-in value of $5,000. What is the difference between the book value and the trade-in value

The trade in value is higher than the book value by $ 205

Explanation:

Computation of Book value

In a double declining balance method of depreciation, the rate of depreciation is double the straight line rate and is depreciated on a declining balance.

Cost of Equipment $ 37,000

Estimated useful life (Recovery Period) 5 years

Straight Line Depreciation rate 20 %

Double declining Method depreciation rate 40 %

Cost $ 37,000

Depreciation for year 1 at 40 % $ (14,800)

Depreciable basis for year 2 $ 22,200

Depreciation for year 2 at40 % $ (8,880)

Depreciable basis for year 3 $ 13,320

Depreciation for year 3 at 40 % $ (5,328)

Depreciable basis for year 4 $ 7,992

Depreciation for year 4 at 40 % $ 3,197)

Depreciable basis for year 5 $ 4,795

The depreciable basis for year 5 is the net book value after 4 years

The trade value is $ 5,000

The trade in value is higher by $ 205