Question

On January 1, 2021, the Excel Delivery Company purchased a delivery van for $46,000. At the end of its five-year service life, it is estimated that the van will be worth $4,000. During the five-year period, the company expects to drive the van 165,000 miles.

Required:
Calculate annual depreciation for the five-year life of the van using each of the following methods.

rev: 05_15_2019_QC_CS-168776, 11_22_2019_QC_CS-191707

Exercise 11-1 (Algo) Part 1

1. Straight line.

2. Double-declining balance. (Round your answers to the nearest whole dollar amount.)

Years Depreciatiation

2021

2022

2023

2024

2025

3. Units of production using miles driven as a measure of output, and the following actual mileage: (Do not round intermediate calculations.)
miles Depreciation

2021 35,000

2022 37,000

2023 28,000

2024 33,000

2025 34,000

Answer 1

1. With the straight line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its salvage value. Straight line depreciation is the most commonly used and straightforward depreciation method for allocating the cost of a capital asset. It is calculated by simply dividing the cost of an asset, less its salvage value, by the useful life of the asset.

Computation of Depreciation as per SLM Method:

Particulars		Amount
		$
Purchase Price	A	46,000
Estimated Salvage value at the end of 5 Years	B	4,000
Value to be depreciation in its useful life	C=A-B	42000
Useful Life of Equipment (in Years)	D	5
Depreciation value per year as per SLM	E=C/D	8400

Therefore, depreciation for every year:

Year	Depreciation
	$
2021	8,400
2022	8,400
2023	8,400
2024	8,400
2025	8,400

2. The double declining balance depreciation method is an accelerated depreciation method that counts as an expense more rapidly when compared to straight-line depreciation that uses the same amount of depreciation each year over an asset's useful life.

Computation of Depreciation as per Double Declining Method:

Depreciation rate = 100/Useful life *2 = 100/5 *2= 40%

Year	Book Value	Depreciation Rate	Depreciation	Net Book Value
	A	B	C=A*B	D=A-C
2021	46,000	40%	18400	27,600
2022	27,600	40%	11040	16,560
2023	16,560	40%	6624	9,936
2024	9,936	40%	3974	5,962
2025	5,962	40%	1962*	4,000

* As the salvage value is $4,000, if depreciation would have been more than $1,962 Net Book Value would have been below $4,000. Therefore, depreciation is taken as $1,962.

Therefore, depreciation for every year:

Year	Depreciation
	$
2021	18,400
2022	11,040
2023	6,624
2024	3,974
2025	1,962

3. The unit of production method is a method of depreciation of the value of an asset over time. It becomes useful when an asset's value is more closely related to the number of units it produces than the number of years it is in use. This method results in greater deductions being taken for depreciation in years when the asset is heavily used.

Computation of Depreciation as per Production using miles :

Depreciation rate per mile used = Depreciable value/Estimated Miles = ($46,000-$4,000)/165,000 = $0.2545

Year	Actual Miles	Depreciation Rate per mile	Depreciation	Net Book Value
	A	B	C=A*B
2021	35,000	0.2545	8,909	37,091
2022	37,000	0.2545	9,418	27,673
2023	28,000	0.2545	7,127	20,545
2024	33,000	0.2545	8,400	12,145
2025	34,000	0.2545	8,145*	4,000

* As the salvage value is $4,000, if depreciation would have been more than $8,145 Net Book Value would have been below $4,000. Therefore, depreciation is taken as $8,145.

Therefore, depreciation for every year:

Year	Depreciation
	$
2021	8,909
2022	9,418
2023	7,127
2024	8,400
2025	8,145