The double-declining-balance method is to beused for an asset with a cost of $88,000, an estimatedsalvage value of $13,000, and an estimated useful lifeof six years.(a) What is the depreciation for the first three fiscalyears, assuming that the asset was placed inservice at the beginning of the year?(b) If switching to the straight-line method isallowed, when is the optimal time to switch?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The double-declining-balance method is to be
used for an asset with a cost of $88,000, an estimated
salvage value of $13,000, and an estimated useful life
of six years.
(a) What is the
years, assuming that the asset was placed in
service at the beginning of the year?
(b) If switching to the straight-line method is
allowed, when is the optimal time to switch?
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