Question

A company has just invested in a fleet of 12 new delivery trucks. They are identical in terms of features, capability, and price. The companies operation involves deliveries to

long haul' destinations, and 'short haul' destinations. The company assumes each truck to have a useful life of 5 years. Experience has shown that the 'long haul' trucks typically

develop problems, or wear out, twice as fast as the 'short haul' trucks, primarily due to the significantly higher number of miles driven each year. The trucks cost $195,000 per

truck. The 'Kelley Blue Book' value for these trucks in five years time will be $20,000. The company will use 4 of the new trucks as 'long haul', and the remainder as 'short haul'

vehicles. The accountants feel it is appropriate to depreciate the vehicles at different rates, due to their different usage levels.

Set up a depreciation schedule for the 'long haul' and 'short haul' trucks, choosing a depreciation method you feel is appropriate. Comment on your rationale for selecting the

method you did for each truck type. Make sure to state all assumptions or estimates.

Show the accounting entries that would be required to represent vehicle depreciation in the companies books.   Will any accounting adjustments be required if the trucks that were just purchased are still being used 8 years from now?

Answer 1