Question

Howard's gun shop bought a new delivery truck on March 1, 2020, for $20,000. The estimated life is 5 years and the estimated salvage is $4,000. Howard's is a calendar-year firm and uses the straight-line method to calculate depreciation on the delivery truck.

Calculate the depreciation expense on Howard's for 2020 and 2021.

Answer 1

Purchase Price = $20,000
Life in Years = 5 years
Salvage Value = $4,000
Method of depreciation = Straight line method of depreciation

Depreciation per annum = (Purchase price - Salvage value) / Life of the assets
= ($20,000 - $4,000) / 5
= $3,200 per annum

Year 2020
Number of months used in the year = 10 months i.e from March 01,2020 to December 31, 2020
Depreciation = ($3,200 / 12 months) x 10 months = $2666.67

Year 2021
Number of months used in the year = 12 months i.e from Jan 01,2021 to Dec 31,2021
Depreciation = $3,200