Question

PROBLEM FOUR - DEPRECIATION

Borel Inc., a calendar year company, purchased a large truck for transporting racehorses. The cost of the trailer was $200,000 and was purchased on March 31, 2018. The dealer stated the truck would provide 10 good years with $20,000 in salvage value. What would be the depreciation expense during the first three years of ownership if Borel Inc. adopted the following depreciation methods: Straight Line; sum-of-the-years digits; and Double Declining Balance?

Answer 1

1. Depreciation as per slm = 200000-20000/10 = $18000 per year

Depreciation for three years = 18000x3 = $54000

2 .As per sum of year = 10+9+8+7+6+5+4+3+2+1 = 55

Dep for year1 = 180000x10/55 = 32737

Dep for year 2 = 180000x9/55 = 29455

Dep for year 3 = 180000x8/55 = 26182

Deprivation for 3 years = 32737+29455+26182 = $88374

3. Double declining balance

Depreciation rate = (1/10)X2 = 20%

Depreciation for year 1 = 200000x20% = 40000

Depreciation for year 2 = (200000-40000)x20% = 32000

Depreciation for year 3 = 128000x20% = $25600

Depreciation for 3 years = $97600