An asset costing $10,000 with a 5-year useful life is depreciated using the double-declining balance method. What is the depreciation expense in Year 1?

Question

Accepted Answer

$4,000. Using double-declining balance, the rate is 2 x (1/5) = 40%. In Year 1, depreciation is applied to the full cost: $10,000 x 0.40 = $4,000. Note that salvage value is not subtracted in the DDB calculation - the rate is simply applied to the current book value.

$2,000 represents the straight-line depreciation assuming no salvage value ($10,000 / 5 = $2,000), not the accelerated double-declining balance amount. $3,200 would be the depreciation in Year 2 under DDB: ($10,000 - $4,000) x 0.40 = $6,000 x 0.40 = $2,400 - actually this doesn't match either, suggesting an arithmetic error or confusion with a different method. $5,000 would result from applying a 50% rate rather than the correct 40% DDB rate.

First-year DDB depreciation calculations are commonly tested on the DSST Business Mathematics exam. The Year 1 calculation is straightforward because the book value equals the original cost. Students should practice calculating DDB for multiple years, as the book value decreases each year and subsequent calculations require tracking the cumulative depreciation.

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