Question

A company uses the double-declining-balance method at 20% on an asset costing ₹300,000 with no change in residual value assumptions. What is depreciation in Year 1 and the opening book value for Year 2?

• A. Year 1 depreciation ₹60,000; Year 2 opening book value ₹240,000
• B. Year 1 depreciation ₹100,000; Year 2 opening book value ₹200,000
• C. Year 1 depreciation ₹75,000; Year 2 opening book value ₹225,000
• D. Year 1 depreciation ₹120,000; Year 2 opening book value ₹180,000

Answer 1

Answer:

D. Year 1 depreciation ₹120,000; Year 2 opening book value ₹180,000

• DDB uses 2 × straight-line rate

• If 20% is the straight-line rate (implied life of 5 years), then the DDB rate is 40%.

• Year 1 depreciation is 0.40 × 300000 = 120000

• The book value at the start of Year 2 equals cost minus Year 1 depreciation: 300000 − 120000 = 180000

• Subsequent years apply 40% to the opening book value, switching to straight-line near the end to avoid dropping below residual value. This accelerates expense recognition to mirror front-loaded benefit patterns.