Question

Dryden purchased a van for $24,000 on January 1, in year 1 and planned to use it as rental property. The van has an estimated salvage value of $4,000 and an estimated useful life of 4 years. Dryden also assumed that the productive capacity of the van is 100,000 miles, and odometer readings indicate that the van was driven 40,000 miles in year 1, 20,000 miles in year 2, 30,000 miles in year 3, and 15,000 miles in year 4, respectively.

Required:

I. Determine the depreciation expense for year 1, year 2, year3 & year 4 by using straight-line method.

II. Determine the depreciation expense for year 1, year 2, year3 & year 4 by using double declining balance method.

III. Determine the depreciation expense for year 1, year 2, year3 & year 4 by using units of production method.

Answer 1

Soluiton 1:

Dryden - Straight line method
Year	Asset Cost	Depreciable Cost	Depreciation Expense for the year (1/4 of depreciable cost)	Accumulated Depreciation	Ending Book Value
Purchase Date	$24,000.00
1		$20,000.00	$5,000.00	$5,000.00	$19,000.00
2		$20,000.00	$5,000.00	$10,000.00	$14,000.00
3		$20,000.00	$5,000.00	$15,000.00	$9,000.00
4		$20,000.00	$5,000.00	$20,000.00	$4,000.00
Total			$20,000.00

Solution II:

Depreciation Schedule - Double Declining Balance Method
Date	Asset Cost	Book Value	Depreciation Rate (25%*2)	Depreciation Expense for the year	Accumulated Depreciation	Ending Book Value
Purchase Date	$24,000
1		$24,000	50%	$12,000	$12,000	$12,000
2		$12,000	50%	$6,000	$18,000	$6,000
3		$6,000		$2,000	$20,000	$4,000
4		$4,000		$0	$20,000	$4,000
Total				$20,000

Solution III:

Depreication per mile = Depreciable cost / Estimated life per mile

= $20,000 / 100000 = $0.20 per mile

Dryden - Unit of Production method
Date	Asset Cost	Depreciation per unit	Nos of miles driven	Depreciation Expense for the year	Accumulated Depreciation	Ending Book Value
Purchase Date	$24,000.00
1		$0.20	40000	$8,000.00	$8,000.00	$16,000.00
2		$0.20	20000	$4,000.00	$12,000.00	$12,000.00
3		$0.20	30000	$6,000.00	$18,000.00	$6,000.00
4		$0.20		$2,000.00	$20,000.00	$4,000.00
Total				$20,000.00