[Anonymous]

I would really appreciate your help.

CPA May 1995 #37

Rye Co. purchased a machine with a 4 year estimated useful life and an estimated 10% salvage value for $80,000 on January 1, 1992. In its Income statement, what would Rye report as the depreciation expense for 1994 using the double declining method?

a. 9,000

b. 20,000

c. 18,000

d. 10,000

d is correct. 1992, expense is 40,000 ( 1/4 x 2 x 80,000) …etc

1994 10,000

My question is why is the salvage value, $80,000, the base of depreciation expense?

Shouldn’t I depreciate based on $800,000 (80,000/10%) the actual machine value?

(e.g. 800,000 x 1/4 x 2…)

[samdiegoCPA]

You're just getting confused with the wording. It means the cost is $80,000 and the SV is 10% of that cost.

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[Anonymous]

Thanks a lot. I hope I don't lose points by getting confused with wording in the actual exam.

[Anonymous]

Also, salvage value is not used in double-decline depreciation method. The 10% salvage value is irrelevant.

[Author]

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