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?
Select one:
A. Straight-line
B. Double-declining balance
C. Sum-of-the-years' digits
D. Units-of-production
| Ans.(B): | Double declining balance method results in the largest depreciation expense in year one of $6,000 (work. Notes). | ||||||||
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Working Notes: |
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| Straight Line = | Cost - Salvage Value / Years of useful Life | ||||||||
| = | ($30,000 - $ 6,000) / 8 | ||||||||
| = | $24,000/8 | ||||||||
| = | 3000 | ||||||||
| Double Declining balance = | 200% of Straight line method | ||||||||
| = | $3,000 x 200% | ||||||||
| = | $ 6,000 | ||||||||
| 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 | ||||||||
| = | 5333.33 | ||||||||
| Units of Production method = | Depreciable cost x miles driven / miles driven by usefull life | ||||||||
| = | $24,000 x 12,000 / 80,000 | ||||||||
| = | 3,600 | ||||||||
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