- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 26. Long-lived Assets
- Subject 3. Depreciation Methods
CFA Practice Question
Taylor Corporation purchased a new asset for $80,000. The asset had an estimated life of 5 years and an estimated salvage value of $20,000. What is the depreciation expense in the second year if the company uses the double-declining-balance method?
A. $16,000
B. $19,200
C. $14,400
Explanation: The double-declining-balance rate is 40% [(100%/5) x 2]. The beginning book value of $80,000 is multiplied by the 40% rate to get a $32,000 depreciation expense for the first year. The second year will be .4 x ($80,000 - $32,000) = $19,200. The accelerated method will cause more depreciation in the early years and a lower value for the assets.
User Contributed Comments 8
| User | Comment |
|---|---|
| linjinfeng | What is double-declining balance method? 100/5*2=40, book value 80,000 first year depreciation expense is 32,000 second year value is 80,000-32,000 the second year depreciation is .4*48,000 |
| Cata | remember: DDB does not take salvage!!! |
| todolist | ignore salvage value in DDB |
| twintigers | 2*1/(DP years)*BV of the year |
| StJohnDale | =(2/life of asset) * NBV |
| dash1s | 20 second problem if you use the BAII plus depreciation worksheet. |
| praj24 | IGNORE SALVAGE!!! |
| janis36 | BEWARE SALVAGE! |