Doubts in FSA Quizzes

nidhi123stary
Posts: 2
Joined: Mon Oct 01, 2012 1:00 pm

Doubts in FSA Quizzes

Postby nidhi123stary » Sat Nov 03, 2012 12:28 am

At the beginning of the year, triple W corporation purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment was $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. Depreciation expense to be reported for the second year using the double declining balance method is closest to
Choose one answer.
a. $ 5,250
b. $6,250
c. $7,000
The correct answer is $6,250.

Year 1: (2/4)*25,000= $12,500, year 2: (2/4)*(25,000-12,500)= $6,250


As per me the answer should be A. 5250 as there is residual value of 4000 too after 4 years. Please confirm if I am wrong or right.

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sahiljindal1990
Posts: 5
Joined: Mon Nov 26, 2012 12:51 pm

Re: Doubts in FSA Quizzes

Postby sahiljindal1990 » Mon Nov 26, 2012 12:52 pm

Salvage Value is never reduced while calculating the depreciation as per Double Decling Method.

pankaj
Finance Junkie
Posts: 61
Joined: Fri Aug 03, 2012 11:24 am

Re: Doubts in FSA Quizzes

Postby pankaj » Mon Nov 26, 2012 1:08 pm

the salvage value is not considered in determining the annual depreciation when using the double-declining-balance method, however, the book value of the asset being depreciated is never brought below its salvage value.

Hope this helps!


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