On January 1, Year 1, the Starshina Company paid $25,000 for a photocopier with an estimated useful life of 4 years, and an estimated residual value of $5,000. The company uses the double-declining-balance method. What is the amount of depreciation expense for Year 3?

The amount of depreciation expense for Year 3 is $3,125.

Explanation: The double-declining method is otherwise known as the reducing balance method and is given by the formula below:

Double declining method = 2 X SLDP X BV

SLDP = straight-line depreciation percentage

BV = Book value

Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($25,000 - $5,000) / 4 years = $5,000 yearly depreciation expense.

Under the double-declining method, 100%/4years = 25%, then 25% multiplied by 2 to give 50%

At Year 1, 50% X $25,000 = $12,500

At Year 2, 50% X $12,500 ($25,000 - $12,500) = $6,250

At Year 3, 50% X $6,250 ($12,500 - $6,250) = $3,125 (the depreciation expense would stop at this stage since the amount falls below the residual value).

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.