Double Line Method and the Straight Line Method

Ball and Bats, Inc.: Double Line method and the Straight Line Method

On January 1, 2005 the company Balls and Bats, Inc. made a

purchase of equipment. The cost of the equipment was one hundred thousand dollars and had life expectancy of four years. The following schedules are the double-declining balance method and the straight line method of depreciation. This schedule will assist Balls and Bats, Inc determine the best method to depreciate there new acquisition. Further, the schedules will determine which will glean a higher net income for the organization for the year ending December 31, 2005.

Double-declining balance method (DDB)

Year 1: D= .50(100,000)

= 50,000

Year 2: D= .50(100,000- 50,000)

= .50(50,000)

= 25,000

Year 3: D= .50(100,000-50,000-25,000)

= .50(25,000)

= 12,500

Year 4 D= .50(100,000-50,000-25,000-12,500)

= .50(12,500)

= 6,250

Declining-Balance at Twice

the Straight-Line

Rate (DDB)

Annual Depreciation Book Value

At Acquisition 100,000

2005 50,000 50,000

2006 25,000 25,000

2007 12,500 12,500

2008 2,500 10,000

Total 90,000

The Double-declining method is calculated utilizing the following formula: DDB rate = 2(100%/n). In this case when calculating year four, we cannot go below the salvage value of 10,000 hence the amount of 2,500 is deducted from year three book value, hence year four ends with a 10,000 book value.

Straight-Line Method

The straight line method spreads the depreciation evenly over the life of the asset.