Question

A company purchases a General Purpose Truck for 100,000.   It will keep this truck for 6 years and then sell it (Salvage Value) for 40,000.  Calculate for each year the depreciation deduction and Book Value (Unrecovered Investment) for this truck using the following depreciation techniques.  Show the first 6 years only. Show your methods of calculation (intermediate thinking and relevant equation and parameters if applicable )  .

( a )  Straight Line Depreciation

( b )   Double Declining Balance

( c )  Using Mandated MACRS depreciation tables

Answer 1

(a) Straight-line (SLM) method

SL annual depreciation = (Cost - Salvage value) / Useful life = (100,000 - 40,000) / 6 = 60,000 / 6 = 10,000

SLM depreciation schedule as follows.

SLM
Year	Beginning-of-year Book Value ($)	Annual Depreciation ($)	Accumulated Depreciation ($)	End-of-Year Book Value ($)
1	1,00,000	10,000	10,000	90,000
2	90,000	10,000	20,000	80,000
3	80,000	10,000	30,000	70,000
4	70,000	10,000	40,000	60,000
5	60,000	10,000	50,000	50,000
6	50,000	10,000	60,000	40,000

(b) DDB

SLM depreciation rate = 1/Useful life = 1/6

DDB rate = 2 x SLM rate = 2/6 = 1/3

DDB Depreciation schedule as follows. This method ignores salvage value.

DDB
Year	Beginning-of-year Book Value ($)	Depreciation Rate	Annual Depreciation ($)	Accumulated Depreciation ($)	End-of-Year Book Value ($)
1	1,00,000	1/3	33,333	33,333	66,667
2	66,667	1/3	22,222	55,556	44,444
3	44,444	1/3	14,815	70,370	29,630
4	29,630	1/3	9,877	80,247	19,753
5	19,753	1/3	6,584	86,831	13,169
6	13,169	1/3	4,390	91,221	8,779

(c) MACRS

MACRS Depreciation schedule as follows. This method ignores salvage value.

MACRS
Year	Cost ($)	Depreciation Rate (%)	Annual Depreciation ($)	Accumulated Depreciation ($)	End-of-Year Book Value ($)
1	1,00,000	20.00	20,000	20,000	80,000
2	1,00,000	32.00	32,000	52,000	48,000
3	1,00,000	19.20	19,200	71,200	28,800
4	1,00,000	11.52	11,520	82,720	17,280
5	1,00,000	11.52	11,520	94,240	5,760
6	1,00,000	5.76	5,760	1,00,000	0