On January 1, Duper Company purchased a delivery truck for $30,000. The company estimates the truck will be driven 80,000 miles over its eight-year useful life. The estimated salvage value is $6,000. The truck was driven 12,000 miles in the first year. Which method results in the largest depreciation expense in year one?
B. Double-declining balance
C. Sum-of-the-years' digits
|Ans.(B):||Double declining balance method results in the largest depreciation expense in year one of $6,000 (work. Notes).|
|Straight Line =||Cost - Salvage Value / Years of useful Life|
|=||($30,000 - $ 6,000) / 8|
|Double Declining balance =||200% of Straight line method|
|=||$3,000 x 200%|
|Sum of the years digit =||Remaining useful life of the asset x Depreciable cost / sum of the years digit|
|=||8 x ($30,000 - $6,000) / (1+2+3+4+5+6+7+8)|
|=||8 x $24,000 / 36|
|Units of Production method =||Depreciable cost x miles driven / miles driven by usefull life|
|=||$24,000 x 12,000 / 80,000|
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