Question

Ivan Manufacturing purchased equipment and a delivery van on January 1, 2020. The equipment cost $95,000 and has an estimated useful life of 8 years with a residual value of $10,000.

The delivery van cost $125,000 and has an estimated life of 5 years or 200,000 kilometres and a residual value of $20,000. The delivery truck is expected to be driven 25,000 and 50,000 kilometres in 2019 and 2020, respectively.

Required

1. Ivan has decided to depreciate the equipment using either the straight-line method or double declining method. Calculate depreciation for the equipment for 2020 and 2021 using the straight-line method AND the double declining method.
2. Ivan has decided to depreciate the delivery van using the units-of-production method. Calculate depreciation for the delivery truck for 2020 and 2021.

	2020 Depreciation	2021 Depreciation
Requirement # 1
Equipment – Straight-line method
Equipment – Double-Declining method
Requirement # 2
Delivery Van – Units-of-Production

Answer 1

(1) Computation of Depreciation on Equipment for FY 2020 & 2021 using:

(a) Straight-line method

Depreciation per year under straight-line method = (Cost-Salvage Value)/Useful Life

Particulars		Equipment
		$
Purchase Cost	A	95,000
Estimated Salvage value	B	10,000
Value to be depreciated in its useful life	C=A-B	85,000
Useful Life of Asset (in Years)	D	8
Depreciation value per year as per SLM	E=C/D	10,625

Therefore, depreciation for 2020 & 2021 under Straight-line method = $10,625.

(b) Double Declining method:

Double Declining Depreciation = Net Book Value at the beginning of year * Double Declining rate

Double Declining rate = (100/Useful life)*2 = (100/8)*2 = 25%

Depreciation expense for the Year 2020 = $95,000*25% = $23,750

Net Book value at the beginning of Year 2021 = $95,000 - $23,750 = $71,250.

Depreciation expense for the Year 2021 = $71,250*25% = $17,812.5

(2) Computation of Depreciation on Delivery Van for FY 2020 & 2021 using units-of-production method:

Units-of-production Depreciation rate = (Cost of Asset - Residual Value) / Total Units of production

Units-of-production Depreciation rate= ($125,000-$20,000)/200,000 Kilometers = $0.525 per Kilometers

Depreciation Expense = Units of production Depreciation x Kilometers Driven

Therefore, depreciation expense for the Year 2020 = 25,000 Kilometers * $0.525 = $13,125

Therefore, depreciation expense for the Year 2021 = 50,000 Kilometers * $0.525 = $26,250