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Straight-Line, Declining-Balance, and Sum-of-the-Years'-Digits Methods A light truck is purchased on January 1 at a cost...

Straight-Line, Declining-Balance, and Sum-of-the-Years'-Digits Methods

A light truck is purchased on January 1 at a cost of $33,840. It is expected to serve for eight years and have a salvage value of $4,800. Calculate the depreciation expense for the first and third years of the truck’s life using the following methods. If required, round your answers to the nearest cent.

Depreciation Expense
Year 1 Year 3
1. Straight-line $ $
2. Double-declining-balance $ $
3. Sum-of-the-years'-digits $ $

Solutions

Expert Solution

  • Straight Line Method Working

A

Cost

33840

B

Residual value

4800

C=A-B

Depreciable base

29040

D

Expected Life

8

E=C/D

Annual SLM Depreciation

3630

Year

Opening Book Value/Carrying Value

SLM Depreciation

Closing Carrying Value

1

33840

3630

30210

2

30210

3630

26580

3

26580

3630

22950

4

22950

3630

19320

5

19320

3630

15690

6

15690

3630

12060

7

12060

3630

8430

8

8430

3630

4800

  • Double declining method Working

A

Cost

33840

B

Residual value

4800

C=A-B

Depreciable base

29040

D

Expected Life

8

E=C/D

Annual SLM Depreciation

3630

F=E/C

SLM Rate

12.5%

G=F x 2

Double declining Rate

25.0%

Year

Opening Book Value/Carrying Value

Rate of Dep

DDB depreciation

Closing Carrying Value

1

33840

25%

8460

25380

2

25380

25%

6345

19035

3

19035

25%

4759

14276

4

14276

25%

3569

10707

5

10707

25%

2677

8030

6

8030

25%

2008

6023

7

6023

25%

1223

4800

8

4800

0

4800

  • Sum of Year digits method Working

Sum of year’s digit = 1+2+3+4+5+6+7+8=36

Year

Remaining Life

Opening Book Value

Depreciation = 29040 x (remaining life/36)

Closing Book Value

1

8

33840

6453

27387

2

7

27387

5647

21740

3

6

21740

4840

16900

4

5

16900

4033

12867

5

4

12867

3227

9640

6

3

9640

2420

7220

7

2

7220

1613

5607

8

1

5607

807

4800

  • Requirement

Depreciation Expense

Year 1

Year 3

1. Straight-line

$3630

$3630

2. Double-declining-balance

$8460

$4759

3. Sum-of-the-years'-digits

$6453

$4840

ekkarill92 answered 3 years ago
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