The solution for the problem is below. I am wondering why it\'s multiplied by 2
ID: 2486573 • Letter: T
Question
The solution for the problem is below. I am wondering why it's multiplied by 2 at the evry end of the solution.
On January 1, 2012, Nobel Corporation acquired machinery at a cost of $1,200,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2015, a decision was made to change to the double-declining balance method of depreciation for this machine. The amount that Nobel should record as depreciation expense for 2015 is
{($1,200,000 – [($1,200,000 ÷ 10) × 3]} ÷ 7 × 2 = $240,000
Explanation / Answer
Straight Line Method:
Depreciation P.a = Cost of Asset- Salvage Value/ Life of Asset
=$1,200,000-0/10
=$120,000
Cost of Asset $1,200,000
Less: Depreciation for 2012-2014
( 120,000 x 3) ($360,000)
-----------------------------
Beginning cost for 2015 $840,000
Double decline Method:
Revised cost of Asset = $840,000
Salvage value =$0
Remaining life of asset= 7 years
Dep % under straight line method= 1/7=14.285%
Dep % under Double decline method= 2 x Dep % under straight line method= 2 x 14.285%=28.57%
Depreciation for 2015= $840,000 x 28.57%=$ 240,000
As per formula we need to multiply with 2 for double decline