Question

7) Melissa Banks, owner of the Panda Express, bought a delivery truck for $24,000. The truck has an estimated life of 4 years with a residual value of $5,000. Melissa wants to know which depreciation method will be best for her truck. She asks you to prepare a depreciation schedule using the declining-balance method at twice the straight-line rate.

8) Sam Matthews bought a new delivery truck for $40,000. The truck has a life expectancy of 5 years with a residual value of $5,000. Prepare a depreciation schedule for the sum-of-the-years'-digits method.

Answer 1

Requirement - 7

Double Declining Balance Method

Year	Book Value at the beginning	Depreciation Rate	Annual Depreciation	Accumulated Depreciation	Book Value at the end
1	24,000.00	50%	12,000.00	12,000.00	12,000.00
2	12,000.00	50%	6,000.00	18,000.00	6,000.00
3	6,000.00	50%	1,000.00	19,000.00	5,000.00
4	-	-	-	-	-

Depreciation Rate =2x ¼ = 50%

**There will not be any depreciation expense in Year 4 Since the Delivery Truck has fully depreciated at the end of year 3

Requirement - 8

Sum-of-the-years'-digits method

Year	Book Value at the beginning	Depreciable cost	Factor	Annual Depreciation	Accumulated Depreciation	Book Value at the end
1	40,000.00	35,000.00	5/15	11,666.67	11,666.67	28,333.33
2	28,333.33	35,000.00	4/15	9,333.33	21,000.00	19,000.00
3	19,000.00	35,000.00	3/15	7,000.00	28,000.00	12,000.00
4	12,000.00	35,000.00	2/15	4,666.67	32,666.67	7,333.33
5	7,333.33	35,000.00	1/15	2,333.33	35,000.00	5,000.00

Depreciable Cost = Cost - Salvage Value

= $40,000 - $5000 = $35,000