On January 1, 2018, the Excel Delivery Company purchased a delivery van for $44,
ID: 2567964 • Letter: O
Question
On January 1, 2018, the Excel Delivery Company purchased a delivery van for $44,000. At the end of its five-year service life, it is estimated that the van will be worth $2,000. During the five-year period, the company expects to drive the van 140,000 miles Required: Calculate annual depreciation for the five-year life of the van using each of the following methods. 1. Straight line. 2. Sum-of-the-years'-digits. 3. Double-declining balance. 4. Units of production using miles driven as a measure of output, and the following actual mileage: Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3Required 4 Calculate annual depreciation for the five-year life of the van using straight line method. Straight-line per yearExplanation / Answer
Date of Purchase of van January 1, 2018 Purchase value of Van 44000 Life of the van 5 years Salvage value 2000 1 Depreciation Under Straight Line method Formula = Purchase value of Asset - Salvage of Asset / Life of Asset =($ 44,000-2,000)/5 years = $8,400 Annual Depreciation using Striaght line Method = $ 8,400 2 Annual Depreciation using Sum of the years' digits Year Depreication base Remaining life of Machine Depreciaiton Fraction Depreciaiton Expense Book Value $ $ $ 2018 42000 5 5/15* 14000 30000 2019 42000 4 4/15 11200 18800 2020 42000 3 3/15 8400 10400 2021 42000 2 2/15 5600 4800 2022 42000 1 1/15 2800 2000 42000 *1+2+3+4+5 = 15 Depreciable cost (depreciable base): $44,000 – $2,000 = $42,000 Depreciation expense at the end of the first year: $42,000 × (5/15) = $14,000 Book value at the end of the first year: $44,000 – $14,000 = $30,000 Notice that as the remaining life of the machine decreases, the depreciation expense also decreases. 3 Annual Depreciation using double decline method = 2 × Straight-line depreciation rate × Book value of Asset Straight Line Depreciation rate = 1/5 = 20% Year Begining value of Asset Depreciaiton Expense Book Value $ $ $ 2018 44000 17600 26400 2019 26400 10560 15840 2020 15840 6336 9504 2021 9504 3802 5702 2022 5702 3702 2000 Depreciation expense at the end of the first year: $44,000 ×2 X20% = $26,400 Depreciation expense at the end of the 2022: $5,702 - 2,000 = $3,702 4 Annual Depreciation using units of production using miles driven Year Deprication Base Miles Depreciaiton Expense Book Value $ $ $ 2018 42000 33000 9900 34100 2019 42000 35000 10500 23600 2020 42000 26000 7800 15800 2021 42000 31000 9300 6500 2022 42000 32000 4500 2000 42000 Depreciable Base = Asset Cost - Salvage Value. Depreciation per Unit = Depreciable Base / Total Units. Depreciation for Period = Depreciation per Unit x Number of Units Produced in a Period. Depreciation expense at the end of the 2022: $6,500 - 2,000 = $4,500