Question

E 9-3A.

Depreciation Methods

A delivery truck costing $20,000 is expected to have a $2,000 salvage value at the end of its useful life of four years of 100,000 miles.  Assume that the truck was purchased on January 2.  Calculate the depreciation expense for the second year using each of the following depreciation methods: (a) straight-line, (b) double-declining balance, and (c) units-of-production.  (Assume that the truck was driven 30,000 miles in the second year.)

a.

Straight-line depreciation =

(Acquisition Cost - Salvage value)

=

Estimated useful life

b.

Double-declining depreciation        =

Beginning of year book value X double-declining balance rate

Year 1 book value =

Double-declining balance rate          =

Year 2 book value =

Year 2 depreciation expense =

c.

Depreciation per mile

Year 2 Miles Driven

Year 2 Depreciation

Units of production depreciation =

(Acquisition Cost - Salvage value)

=

X

=

Total estimated units of production

Answer 1

(a) Depreciation under Straight line method = (Cost - Salvage value) / Estiamted useful life

Depreciation for Year 2 = ($20,000 - $2,000) / 4

= $4,500

(b) Depreciation under Double declining balance method = (Cost - Accumulated depreciation) / Useful life * 2

Depreciation for Year 1 = ($20,000 - $0) / 4 * 2 = $10,000

Depreciation for Year 2 = ($20,000 - $10,000) / 4 * 2 = $5,000

(c) Depreciation under units of production method = (Cost - Salvage value) * miles driven / Total estimated miles

= ($20,000 - $2,000) * 30,000 / 100,000

= $5,400