Financial Reporting and Analysis Q94

94Lazy Leathers Ltd. purchased a machine worth $100,000.The machine will be used for five years. The estimated salvage value at the end of Year 5 is $15,000. The company charges depreciation using the double declining balance method. Which of the following is most likely to be the depreciation expense of the machine for Year 1?

Option : B
Explanation : With the double declining method, depreciation is twice that compared to straight line depreciation. Since the straight line depreciation would be 20%, the double declining method depreciation is 40%. Hence, the depreciation is 40,000 for Year 1.

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