University Car Wash built a deluxe car wash across the street from campus. The new machines cost $270,000 including installation. The company estimates that the equipment will have a residual value of $24,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours Used 1 3,100 2 1,100 3 1,200 4 2,800 5 2,600 6 1,200 2. Prepare a depreciation schedule for six years using the double-declining-balance method.

Year       Depreciation expenses

  1                        $90,000

 2                        $60,000

 3                        $40,000

 4                        $26,667

 5                        $17,778

 6                        $11,556

Explanation:

Note: See the attached excel file for the depreciation schedule for six years using the double-declining-balance method.

The double-declining-balance method is a depreciation approach in which the rate of depreciation for an asset is twice the rate of depreciation for the straight line method.

In the attached excel, the double-declining-balance depreciation rate is therefore calculated as follows:

Straight line depreciation rate = 1 / Number of expected useful years = 1 / 6 = 0.166666666666667 = 16.6666666666667%

Double-declining depreciation rate = Straight line depreciation rate * 2 = 16.6666666666667% *2 = 33.3333333333334%

Also note the following in the attached excel file:

Beginning depreciable amount in Year 1 = Cost of the new machine = $270,000

The depreciation expenses for Year 6 is calculated by deducting the residual value of $24,000 from Year 6 Beginning depreciable amount. That is:

Depreciation expenses for Year 6 = $35,556 - $24,000 = $11,556

The residual value of $24,000 therefore represents the book value at the end of Year 6.

From the attached excel file, we therefore have:

Year       Depreciation expenses

  1                        $90,000

 2                        $60,000

 3                        $40,000

 4                        $26,667

 5                        $17,778

 6                        $11,556

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