Brando Company purchased a refrigerated delivery truck for S65.000 on April 1,20
ID: 2498086 • Letter: B
Question
Brando Company purchased a refrigerated delivery truck for S65.000 on April 1,2016. The plan is to use the truck for 5 years and then replace it. At the end of its usefiil life the ruck is expected to have a salvage value of SI 0.000. Prepare the depreciation table for Brando's truck assuming that the company uses the straight-line method for depreciation. Prepare the depreciation table for Brando's truck assuming that the company uses the double-declining-balance depreciation method. Compute the depreciation expense for 2016 for Brando's truck assuming the truck has an expected life of 200.000 miles and during 2016 the truck was driven 24,540 miles. Round your depreciation expense per mile to three decimal places.Explanation / Answer
a) Straight line depreciation
Cost of the asset = $65000
Salvage value = $10000
Useful life = 5 years
Depreciation per year
= (Cost of the asset- Salvage value) / Useful life
= ($65000 - $10000) / 5
= $11000
b) Double declining balance method:
Depreciation rate = 2 x straight line depreciation rate = 2 x (1/ useful life of the machine) = 2 x (1/5) = 0.40 = 40%
Depreciation base = cost of the asset - accumulated depreciation.
Depreciation for the first year = 65000 x 40% = $26000
2nd year:
depreciation base = cost of the asset - accumulated depreciation = $65000 - $26000 = $39000
Depreciation for the second year = $3900 x 40% = $15600
3rd year:
depreciation base = cost of the asset - accumulated depreciation.= $65000 -( $26000 +$15600) = $23400
Depreciation for the third year = $23400 x 40% = $9360
4th year:
depreciation base
= cost of the asset - accumulated depreciation.= $65000 - (26000+15600+9360) = $14040
depreciation for the 4th year = $14040 x 40% = $5616
WDV after the fourth year depreciation = 14040 - 5616 = $8424.
The salvage value of the tuck is $10000. As the WDV cannot be less than the salvage value of the truck, the depreciation of the fourth year = $14040 - $10000 = $4040
WDV as on 31st March 2020 10000
c) depreciation per mile
= (cost of the machine - salvage value ) / expected life in miles
= ( $65000 - $10000) / 200000 miles
= $55000 / 200000 miles
= $0.275 / mile
Depreciation for the year 2016
= rate of depreciation x number of expected miles run by the truck
= $0.275 / mile x 24540 miles
= $6748.50
Particulars $ cost of the truck on April 1, 2016 65000 Less: depreciation for 1st year 11000 WDV as on March 31 2017 54000 Less: depreciation for 2nd year 11000 WDV as on March 31, 2018 43000 Less: depreciation fpr 3rd year 11000 WDV as on 31st march 2019 32000 less: depreciation for the 4th year 11000 WDV as on 31st March 31 2020 21000 less: depreciation for the 5th year 11000 WDV as on 31st march 2021 10000