Question

ABC Company has the following asset on its books: Using the double declining balance depreciation method, what is the depreciation expense in years 1 through 4.

               

                                Truck cost                             31,000

                                Salvage value                       1,000

                                Estimated life in years             4

                                Estimated life in miles      100,000

                                Miles driven in years 1 = 25,000, year 2 = 20,000, year 3 = 33,000, year 4 = 24,000

Question 9 options:

	a) year 1 = 7,500, year 2 = 6,000, year 3 = 9,900, year 4 = 7,200.
	b) 15,500, year 2 = 7,750, year 3 = 3,875, year 4 = 1,939.
	c) year 1 = 15,000, year 2 = 7,500, year 3 = 3,750, year 4 = 3,750.
	d) year 1 = 15,500, year 2 = 7,750, year 3 = 3,875, year 4 = 2,875.

Answer 1

· Workings

A	Cost	$            31,000.00
B	Residual Value	$              1,000.00
C=A - B	Depreciable base	$            30,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$              7,500.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$              31,000.00	50.00%	$         15,500.00	$             15,500.00	$        15,500.00
2	$              15,500.00	50.00%	$            7,750.00	$                7,750.00	$        23,250.00
3	$                7,750.00	50.00%	$            3,875.00	$                3,875.00	$        27,125.00
4	$                3,875.00		$            2875.00	$                1,000.00	$        30,000.00

· Correct Answer = Option ‘D’

Year 1 = 15,500, year 2 = 7,750, year 3 = 3,875, year 4 = 2,875.