1. Straight-line
(Cost − residual value) / useful life = (£80,000 − £8,000) / 4 = £18,000 a year, so the carrying amount falls to £62,000, £44,000, £26,000 and finally £8,000.
2. Double declining balance
Straight-line rate = 1/4 = 25%, doubled = 50%, applied to the carrying amount at the start of each year. Residual value is ignored in the rate but sets a floor.
- Year 1:
£80,000 × 50% = £40,000, leaving £40,000. - Year 2:
£40,000 × 50% = £20,000, leaving £20,000. - Year 3:
£20,000 × 50% = £10,000, leaving £10,000. - Year 4: 50% would be £5,000, but that would take the machine below its £8,000 residual value, so the charge is limited to £2,000.
Both methods charge £72,000 in total. The declining balance method simply charges more of it in the early years.