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12 September, 10:56

Clarence Trucking Inc. purchased a new truck on January 1 of the current year for $360,000. Its useful life is expected to be 8 years and its salvage value is estimated at $60,000. The company uses the double-declining balance method. What is the truck's book value at the end of December 31 of the second year?

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  1. 12 September, 13:11
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    The book value by December 31=$202,500

    Explanation:

    The expression for the depreciable cost is as follows;

    depreciable cost=Acquisition cost-salvage value

    where;

    acquisition cost=$360,000

    residual value=$60,000

    replacing;

    depreciable cost=360,000-60,000=$300,000

    depreciable cost=$300,000

    The annual depreciation can be expressed as;

    annual depreciation=depreciable cost/estimated life

    where;

    depreciable cost=$300,000

    estimated life=8 years

    replacing;

    annual depreciation=300,000/8=37,500

    annual depreciation=$37,500

    depreciation rate = (annual depreciation/depreciable cost) * 100

    depreciation rate = (37,500/300,000) * 100=12.5%

    double declining depreciation rate=12.5%*2=25%

    First year depreciation=360,000*25%=$90,000

    Second year depreciation = (360,000-90,000) * 25%=$67,500

    Accumulated depreciation by December 31=90,000+67,500=$157,500

    Book value=purchase cost-accumulated depreciation

    Book value=360,000-157,500=$202,500

    The book value by December 31=$202,500
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