On October 1, 2013, Holt Company places a new asset into service. The cost of th
ID: 2461273 • Letter: O
Question
On October 1, 2013, Holt Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2013, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation? A) $52,000 B) $60,000 C) $72,000 D) $76,000
On October 1, 2013, Holt Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2013, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation? A) $52,000 B) $60,000 C) $72,000 D) $76,000
On October 1, 2013, Holt Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2013, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation? A) $52,000 B) $60,000 C) $72,000 D) $76,000
Explanation / Answer
In the double declining balance method, the rate of depreciation = 2*straight line depreciation rate*book value of the asset at the beginning
In this case, useful life is 5 years. Thus straight line depreciation rate will be = 100%/5 years = 20% per annum.
Depreciation for the 1st year = book value at the beginning*2*20% = 80,000*2*20% = 32,000.
But this depreciation is for the full year or for 12 months. Time period between October 1 and December 31 = 3 months.
Thus amount of depreciation = full year depreciation * 3 months/12 months
= 32,000*3/12 = $8,000.
Thus book value = opening balance - depreciation amount
= 80,000 - 8,000 = $72,000.
Hence answer is "C" - $72,000
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