Question

A new van costs $25,000, has an estimated useful life of five years and an estimated salvage value of $5,000 at the end of that time. It is expected that the van will be driven 100,000 miles during its useful or service life.

The Nation Express Company purchases this van on April 1, 2019. During 2019 the van is driven 13,000 miles and during 2020 it was driven 21,000 miles. On January 1, 2021, the van is sold for $7,000.

Calculate the depreciation expense for 2019 and 2020 using:

1. Straight-line

2. Double-declining-balance

3. Units-of-production

Answer 1

1.SL Method

depreciation = cost of Van - Salvage / No. Of years

= 25000-5000 / 5

= 20000 /5

= 6000

SLD rate = deprection / cost of van- salvage *(100)

= 6000/20000* (100)

= 30%

For year 2019

Depreciation = cost of van * 30% * (9/12)

= 25000 * 30% * (9/12)

= 5625

For year 2020

Value of van = 25000-5625

= 19375

Depreciation = value of cost *30%

= 19375*30%

= 5812.5

2. Double decline balance rate

= SL rate *2

= 30% *2

60%

For year 2019

Depreciation = cost of van *60% *(9/12)

= 25000 *60% *(9/12)

= 11250

For year 2010

Value of van = cost of van - depreciation

= 25000- 11250

=13750

Depreciation = wdv of van * 60%

= 13750* 60%

= 8250

3. Unit of production

Depreciation per mile = cost of van - Salvage / driven miles during

= 25000- 5000 / 100000

= 20000/100000

0.2 per mile

For 2019

Depreciation = depreciation per mile * miles driven during year

= 0.2 *13000

= 2600

For year 2020

Depreciation = depreciation per mile * miles driven during year

= 0.2* 21000

= 4200