Tony and Suzie see the need for a rugged all-terrain vehicle to transport partic
ID: 2460282 • Letter: T
Question
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $13,600. The vehicle is purchased in late June and will be put into use on July 1, 2016. Annual insurance from GEICO runs $2,000 per year. The paint is starting to fade, so they spend an extra $3,400 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $2,400 is spent on a deluxe roof rack and a trailer hitch. The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. They expect to use the Suburban for five years and then sell the vehicle for $4,900.
1. Determine the amount that should be recorded for the new vehicle.
2. Prepare a depreciation schedule using the straight-line method.
1. Determine the amount that should be recorded for the new vehicle.
2. Prepare a depreciation schedule using the straight-line method.
Explanation / Answer
1) Cost of suburban to be capitalized Cost 13600 Repaint cost 3400 additional new parts 2400 Total cost to be capitalised 19400 Insurance cost not to be capitalised as it is annual cost 2) Depriciation Straight line depriciation =( total cost-Salvage value) / number of years = (19400-4900) / 5 = 14500/5 = 2900 Depriciation schedule Period Cost Depricition WDV 1st July - 31st Dec 2016 (6 months) 19400 =2900/12*6 = 1450 17950 1st Jan - 31st Dec 2017 19400 2900 15050 1st Jan - 31st Dec 2018 19400 2900 12150 1st Jan - 31st Dec 2019 19400 2900 9250 1st Jan - 31st Dec 2020 19400 2900 6350 1st Jan - 30th June 2021 19400 =2900/12*6 = 1450 4900