Question
In: Accounting
An excavation company purchased a truck for $60,000 that has an estimated salvage value of $15,000...
An excavation company purchased a truck for $60,000 that has an estimated salvage value of $15,000 at the end of its 5-year useful life. Compute the second year depreciation, the cumulative depreciation at the end of the second year, and the book value at the end of the second yearusing: (a) Straight-line (SL) depreciation, (b) Sum-of-the-years’ digits (SOYD) depreciation, (c) Double declining balance (DDB) depreciation, and (d) MACRS depreciation. Please put each depreciation in the each box.
Solutions
Expert Solution
| (a).Straight Line Depreciation method | |||||||
| Calculation as follows: | |||||||
| Cost of the asset | 60000 | ||||||
| Salvage Value | 15000 | ||||||
| Estimated Useful life of the asset | 5 | Years | |||||
| 1st Year depreciatiion will be | 9000 | ||||||
| (cost of the asset - Salvage value) / Estimated useful life | |||||||
| 2nd Year depreciatiion will be | |||||||
| (cost of the asset - Salvage value) / Estimated useful life | 9000 | ||||||
| Cumulative Depreciation at the end of 2nd Year will be | 18000 | ||||||
| The book value at the end of 2nd Year will be | 42000 | ||||||
| (b).Sum of the years digits (SYOD) Depreciation method | |||||||
| Year (t) | N - (t+1) | Multiplier | Cost-Salvage value | Depreciation | Book value | ||
| 1st Year depreciatiion will be | 15000 | 0 | 60000 | ||||
| (cost of the asset - Salvage value) * 1st Year Multiplier | 1 | 5 | 0.333333333 | 45000 | 15000 | 45000 | |
| 2 | 4 | 0.266666667 | 45000 | 12000 | 33000 | ||
| 2nd Year depreciatiion will be | 3 | 3 | 0.2 | 45000 | 9000 | 24000 | |
| (cost of the asset - Salvage value) * 2 nd Year Multiplier | 12000 | 4 | 2 | 0.133333333 | 45000 | 6000 | 18000 |
| 5 | 1 | 0.066666667 | 45000 | 3000 | 15000 | ||
| Cumulative Depreciation at the end of 2nd Year will be | 27000 | 15 | 1 | 45000 | |||
| The book value at the end of 2nd Year will be | 33000 | ||||||
| (c).Double Declining Balance (DDB) Method | |||||||
| Calculation as follows: | |||||||
| Cost of the asset | 60000 | ||||||
| Salvage Value | 15000 | ||||||
| Estimated Useful life of the asset | 5 | Years | |||||
| Depreciation Rate (1/Useful life)*100 | 20.00% | ||||||
| Double Depreciation rate will be (2* Depreciation Rate) | 40.00% | ||||||
| 1st Year depreciatiion will be | 24000 | ||||||
| (cost of the asset* double depreciation rate) | |||||||
| 2nd Year depreciatiion will be | |||||||
| (cost of the asset - depreciation for 2019 )*double depreciation rate | 14400 | ||||||
| Cumulative Depreciation at the end of 2nd Year will be | 38400 | ||||||
| The book value at the end of 2nd Year will be | 21600 | ||||||
| (d).MACRS Depreciation | |||||||
| Year (t) | MARCS Recovery Rates 5 Year | Cost | Depreciation | Book value | |||
| 0 | 60000 | ||||||
| 1 | 0.2 | 60000 | 12000 | 48000 | |||
| 2 | 0.32 | 60000 | 19200 | 28800 | |||
| 3 | 0.192 | 60000 | 11520 | 17280 | |||
| 4 | 0.1152 | 60000 | 6912 | 10368 | |||
| 5 | 0.1152 | 60000 | 6912 | 3456 | |||
| 6 | 0.0576 | 60000 | 3456 | 0 | |||
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