Question

Depreciation Methods

ABC Co purchased a truck on January 1, 2015 for $25,000; it cost $2500 to have it delivered, $1500 to have it installed, and taxes and title fees were $600 and $400, respectively. The truck has an estimated salvage value of $6,000 and is expected to last 5 years and 150,000 miles.

1. Calculate depreciation expense and book value for each year under the Straight Line Method and the Double Declining Balance. (10 Points each)

                 Straight Line                                            Double-Declining Balance

Year       Expense                    Book Value...................................                      Expense                           Book Value

2015

2016

2017

2018

2019

2. Assume the truck was driven 22,000 miles in 2018 and 25,000 miles in 2019. Calculate depreciation expense and book value for the last two years using the units-of-activity depreciation method. (5 Points)

Year      Units of Activity       Expense                    Book Value

2018      22,000

2019      25,000

Answer 1

Cost of the Asset =$25,000 + $2,500 + $1,500 + $600 + $400 =$30,000
Straight Line method
Year	Cost of asset	Depreciable cost	Depreciation rate	Depreciation expenses	Accumulated Depreciation	Book value
At Acquistion						$30,000
2015	$30,000	$24,000	20.00%	$4,800	$4,800	$25,200
2016	$30,000	$24,000	20.00%	$4,800	$9,600	$20,400
2017	$30,000	$24,000	20.00%	$4,800	$14,400	$15,600
2018	$30,000	$24,000	20.00%	$4,800	$19,200	$10,800
2019	$30,000	$24,000	20.00%	$4,800	$24,000	$6,000
Units of production
Date	Depreciable cost	Depreciation per mile	No. of miles	Depreciation expenses	Accumulated Depreciation	Book value
At Acquistion						$30,000
2015	$24,000	$0.16	22000	$3,520	$3,520	$26,480
2016	$24,000	$0.16	25000	$4,000	$7,520	$22,480
Double Declining balance
Date	Cost of asset	Book Value	DDB Rate	Depreciation expenses	Accumulated Depreciation	Book value
At Acquistion						$30,000
2015	$30,000	$30,000	40.00%	$12,000	$12,000	$18,000
2016	$30,000	$18,000	40.00%	$7,200	$19,200	$10,800
2017	$30,000	$10,800	40.00%	$4,320	$23,520	$6,480
2018	$30,000	$6,480	40.00%	$480	$24,000	$6,000
2019	$30,000	$6,000	40.00%	$0	$24,000	$6,000