Question

Information for questions 1-4: On January 1, Town Spa Pizza purchased a delivery truck for $36,000. The truck has an estimated useful life of 10 years or 140,000 miles and an estimated residual value of $8,000. Town Spa’s fiscal year is the calendar year. Calculate the amounts requested below.

1.         Depreciation Expense for the year, using the production method. Assume 22,000 miles were driven this year.

a. $4,400           c. $2,800

            b. $5,657              d. $3,600

2.         The total accumulated depreciation after the truck has been used for 5 years, using the straight-line method.

a. $22,000         c. $2,800

            b. $13,000         d. $14,000

3.         Depreciation Expense for year 3 of use, using the double-declining balance method.

a. $4,032            c. $3,584

            b. $5,184           d. $4,608

4.         Assume the truck was purchased on September 20. The depreciation expense for calendar year 2 of use, using the double-declining balance method, would be:

a. $4,750            c.$3,656

            b. $6,840           d. $5,320

Answer 1

Solution :

Answer (1) The Answer is (a) $ 4,400.

Answer (2) The Answer is (d) $ 14,000.

Answer (3) The Answer is (d) $ 4,608.

Answer (4) The Answer is (b) $ 6,840.

Working :

1. Depreciation as per Miles Production = Depreciable Value / Total Estimated Miles * Miles Driven

= ($ 36,000 - $ 8,000) / 140,000 * 22,000

= $ 4,400

2. Depreciation as per Straigh Line Basis = (Original Cost - Salvage Value) * Useful Life

= ($ 36,000 - $ 8,000) / 10

= $ 2,800 per Year

Accumulated Depreciation after 5 Years = $ 2,800 * 5 = $ 14,000.

3. Rate per Double Decline Method = (100% / Useful life) * 2

= (100% / 10) * 2

= 20%

	Year 1	Year 2	Year 3
(a) Opening Balance	$ 36,000	$ 28,800	$ 23,040
(b) Depreciation (a * 20%)	$ 7,200	$ 5,760	$ 4,608
(c) Closing Balance (a - b)	$ 28,800	$ 23,040	$ 18,432

4.

	Year 1	Year 2
(a) Opening Balance	$ 36,000	$ 34,200
(b) Depreciation	$ 36,000 * 20% * 3 / 12 = $ 1,800	$ 34,200 * 20% = $ 6,840
(c) Closing Balance (a - b)	$ 34,200	$ 27,360

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