They are doing a very poor job of explaining the concept in the section above the blue box. The little paragraph contains all the information you need but would be so much clearer if they only would put a freaking formula for each method (they didn’t even bother to type the names of the declining balance method in bold face).
The formula for double declining balance is:
depreciation expense in year x= 2 * book value at beginning of year x/depreciable live in years
Sooner Inc. uses double declining, which means we ignore the residual value when computing the depreciation expense, BUT we still use the residual value to let us know, when we need to stop depreciating.
First year, Soone Inc does the following:
2*2300/4=1150
Notice that the remaining balance happens to be the same as the depreciation expense, but that is a mere coincidence. In the last year, you need to hit your residual value, so whether your depreciation expense exceeds that value or falls short, you expense an amount that gets you to the residual value.
Also, remember that the BA II Plus has a function to create depreciation schedules called ‘DEPR’ (which does not stand for depreciation but is Although the calculations for depreciations are straightforward (if you remember the correct formula), I found that I was faster using DEPR, but