Corales Company acquires a delivery truck at a cost of $77,000. The truck is expected to have a salvage value of $8,000 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method. I have tried calculating 3x's and no luck. This is my answers that I came up with Straight Line Depreciation: (77,000-8,000) / 5/77,000=0.18, Reducing Balance Depreciation Rate: 2*0.18=0.36 or 36% Annual Depreciation Under Declining Balance Method: Year 1: $77,000 x 36% = $27,720 Depreciation Year 2: ($77,000 - 27,720) x 36% = $17,740.80

Double Declining Method

Depreciation : Year 1 = 27,720

Depreciation : Year 2 = 17,740.80

Depreciation : Year 3 = 11,354.4

Depreciation : Year 4 = 7266.816

Depreciation : Year 5 = 4650.76 Residual Value at the end of 5th year = $ 8287

Explanation:

Straight Line Depreciation: (77,000-8,000) / 5/77,000=0.18,

Reducing Balance Depreciation Rate: 2*0.18=0.36 or 36% Annual Depreciation Under Declining Balance Method:

Year 1: $77,000 x 36% = $27,720

Depreciation Year 2: ($77,000 - 27,720) x 36% = $17,740.80

Depreciation Year 3: ($77,000 - 45460) = $31549 x 36% = $11,354.4

Depreciation Year 4: ($77,000 - 56814.4) = $20,185.6 x 36% = $ 7266.816

Depreciation Year 5: ($77,000 - 64081.22) = $ 12918.78 x 36% = $ 4650.76

At the end of the fifth year the accumulated depreciation will be $ 68,731 and the residual value of the truck will be 77,000 - 68713 = 8287 which is almost equal to the given required value.

Under diminishing balance method we add up the depreciation and deduct from the total value and then apply the percent to the remaining value until we arrive at the desired given salvage or residual value.