In: Accounting
Lake Company bought a used delivery truck on January 1, 2017, for $20,000. The delivery truck was expected to remain in service 4 years (50,000 miles). Lake's accountant estimated that the truck’s residual value would be $2,000 at the end of its useful life. The truck traveled 14,000 miles the first year and 18,000 miles the second year. Calculate depreciation expense for the truck for 2017 and 2018 using the
• Straight-line method.
• Double-declining balance method
• Units of Production method.
Answer:-
Cost of Asset = $20,000
Useful Life = 4 years
Estimated Residual Value = $2,000
Depreciation = Cost - Estimated Residual Value / Useful Life
= 20000-2000/4 = 18000/4 = 4,500 p.a.
Hence Depreciation as per Straight Line Method :
Year | Depreciation Expense |
2017 | $4,500 |
2018 | $4,500 |
Useful Life of the Asset = 4 years
Hence, Rate of Depreciation = 100/4 = 25%
Double Rate = 25*2 = 50%
Hence Depreciation as per Double Declining Balance Method :
Year | Cost/Beginning Book Value | Depreciation Expense |
2017 | $20,000 (Cost) |
$10,000 [20000*50/100] |
2018 | $10,000 (Beginning Book Value) |
$5,000 [10000*50/100] |
Truck Life = 50,000 miles
Miles Travelled in 1st year = 14,000
Miles Travelled in 2nd year = 18,000
Cost of Asset = $20,000
Estimated Residual Value = $2,000
Depreciaiton = Cost - Estimated Residual Value/Life of Truck in Miles * Miles Travelled
= 20000-2000/50000*Miles Travelled = 0.36*Miles Travelled
Hence Depreciation as per Units of Production Method :
Year | Miles Travelled | Depreciation Expense |
2017 | 14,000 |
$5,040 [0.36 * 14000] |
2018 | 18,000 |
$6,480 [0.36 * 18000] |