g MNVK Corp. purchased a computer system at a cost of $150,000 on January 1, 2020. The estimated useful life is 10 years, and the estimated residual value is $10,000. Assuming MNVK uses the double-declining-balance method, what is the depreciation expense for 2021

MNVK Corp.

Depreciation expense for 2021 = $24,000

Explanation:

a) Data and Calculations:

Cost of computer system = $150,000

Purchase date = January 1, 2020

Estimated useful life = 10 years

Residual value = $10,000

Straight-line depreciation rate = 10%

Double-declining balance method rate = 10% * 2 = 20%

Depreciation expense for 2020 = $30,000 ($150,000 * 20%)

Balance after 2020 = $120,000 ($150,000 - $30,000)

Depreciation expense for 2021 = $24,000 ($120,000 * 20%)

b) The double-declining method is based on the straight-line depreciation rate, multiplied by 2.  The method does not consider the residual value initially.  It is towards the end of the useful life that the residual value is accounted for, to ensure that depreciation expense does not eat into it.