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Can anyone help clarify for me why the residual value of $5,000 (what I assume to be the equivalent of salvage value) is not subtracted from $75,000? This seems to go against everything I though I knew about depreciation. Thank you
XYZ Company recently purchased a machine for $75,000. It expects to use the machine for 6 years, after which it will have a residual value of $5,000. How much depreciation should the company charge in the second year using double-declining balance depreciation?
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$16,667
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$15,556
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$25,000
Answer: A
Depreciation expense (first year) = 2/6 × (75,000) = $25,000
Depreciation expense (second year) = 2/6 × (75,000 − 25,000) = $16,667
(Wiley 25-16)
Wiley. Practice Questions for 2015 Level I CFA Exam. John Wiley & Sons P&T, 2014-08-27. VitalBook file.
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Further in the text, the below question is asked. Am I missing something? Does the double decline balance method not account for an asset’s salvage value?
Supernova’s depreciation expense for 2009 under the straight line method is closest to:
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$101,875
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$109,375
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$81,500
Answer: A
Depreciation expense = (Cost – Residual Value) / Useful life
Depreciation expense = (875,000 – 60,000) / 8 = $101,875
(Wiley 25-26)
Wiley. Practice Questions for 2015 Level I CFA Exam. John Wiley & Sons P&T, 2014-08-27. VitalBook file.
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