Question

Speedy Express is a family operation that has been operating in Victoria for many years. It purchased a new delivery truck on January 1, 2017, at a cost of $50,000. As Speedy delivers over a wide area, considerable mileage will be recorded on the truck each year. Speedy currently uses the straight-line method but is considering using the double declining-balance method based at twice the straight-line rate. Speedy expects the life of the truck to be five years at the end of which there will be a salvage value of $5,000. Speedy has a December 31st year-end.Required(a) Prepare a depreciation schedule that shows the annual depreciation expense and carrying value for the delivery truck for its 5-year life for both the straight line and double-diminishing balance method. b) The truck was sold on July 1, 2019, for $10,000. Calculate the gain or loss under the double diminishing balance method and record the journal entry for the sale (c) Speedy decides to use the Units of the Production method for depreciation of the truck. Speedy expects to drive the truck for a total of 200,000 kilometers over its service life. Actual kilometers driven are: 2017 – 25,000 km; and 2018 – 37,000 km. Calculate depreciation expense for both 2017 and 2018 below:

Answer 1

Part A

Method			Straight line
Equipment cost			$           50,000
Less: Salvage value			$             5,000
Depreciable Value			$           45,000
Divided by: Useful life			5
Depreciation per year			$             9,000
Ending book value = Beginning book value - Depreciation
Year	Beginning book value	Depreciation	Ending book value
2017	$           50,000	$            9,000	$           41,000
2018	$           41,000	$            9,000	$           32,000
2019	$           32,000	$            9,000	$           23,000
2020	$           23,000	$            9,000	$           14,000
2021	$           14,000	$            9,000	$             5,000
Depreciation schedule
Year	Depreciation expense	Carrying value
2017	$              9,000	$          41,000
2018	$              9,000	$          32,000
2019	$              9,000	$          23,000
2020	$              9,000	$          14,000
2021	$              9,000	$            5,000

Method			Double Decline
Deprectaion rate as per Straight line (1/5)			20%
Deprectaion rate as per Double Decline method (20%*2)			40%
Depreciation = Beginning book value * 40%
Ending book value = Beginning book value - Depreciation
Year	Beginning book value	Depreciation	Ending book value
2017	$           50,000	$          20,000	$           30,000
2018	$           30,000	$          12,000	$           18,000
2019	$           18,000	$            7,200	$           10,800
2020	$           10,800	$            4,320	$             6,480
2021	$              6,480	$            1,480	$             5,000
Last year depreciation = 6480-5000
Depreciation schedule
Year	Depreciation expense	Carrying value
2017	$           20,000	$          30,000
2018	$           12,000	$          18,000
2019	$              7,200	$          10,800
2020	$              4,320	$            6,480
2021	$              1,480	$            5,000

Part B

Depreciation expense per year 2017			$           20,000
Depreciation expense per year 2018			$           12,000
Depreciation expense per year 2019 (for six months) (7200*6/12)			$             3,600
Accumulated Depreciation on July 1, 2019			$           35,600
Equipment cost			$           50,000
Less: Accumulated Depreciation on July 1, 2019			$           35,600
Book value			$           14,400
Less: Machine sold			$           10,000
Loss (Gain) on sale of assets			$             4,400

Date	Account Titles and Explanation	Debit	Credit
July 1, 2019	Accumulated depreciation - equipment	35,600
	Cash	10,000
	Loss on sale of equipment	4,400
	Equipment		50,000
	(To record the sale of equipment.)

Part C

Method			Units of the Production
Equipment cost			$           50,000
Less: Salvage value			$             5,000
Depreciable Value			$           45,000
Divided by: Useful life in kilometers			200,000
Depreciation per kilometer			$           0.2250
Depreciation expense for 2017 (25000*0.2250)			$             5,625
Depreciation expense for 2018 (37000*0.2250)			$             8,325