Question

In recent years, Avery Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant selected the depreciation method for each bus, and various methods were selected. Information concerning the buses is summarized as follows.

 

For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 120,000. Actual miles of use in the first 3 years were 2016, 24,000; 2017, 34,000; and 2018, 30,000.

 

Instructions

(a) Compute the amount of accumulated depreciation on each bus at December 31, 2017.

(b) If Bus 2 was purchased on April 1 instead of January 1, what is the depreciation expense for this bus in (1) 2015 and (2) 2016?

Answer 1

a)

Cost of Bus	$ 96,000
Less: Salvage value	$ (6,000)
Depreciable value	$ 90,000
Useful life	5 Years
Depreciation expense per year ($90,000/5)	$ 18,000
Accumulated depreciation on December 31, 2017 ($18,000*3)	$ 54,000

Year	Book value	Depreciation	Accumulated deprciation
31/12/2015	$ 96,000	$96,000/4*2 = $48,000	$ 48,000
31/12/2016	$96,000-$48,000 = $48,000	$48,000/4*2 = $24,000	$48,000+$24,000 = $72,000
31/12/2017	$48,000-$24,000 = $24,000	$24,000/4*2 = $12,000	$72,000+$12,000 = $84,000

Cost of Bus	$ 96,000
Less: Salvage value	$ (6,000)
Depreciable value	$ 90,000
Expected units to be purchased	120,000
Depreciation expense for 2016 ($90,000/120,000*24,000)	$ 18,000
Depreciation expense for 2017 ($90,000/120,000*34,000)	$ 25,500
Accumulated depreciation on 2017 ($18,000+$25,500)	$ 43,500

 

b)

Year	Book value	Depreciation	Accumulated deprciation
31/12/2015	$ 96,000	$96,000/4*2*9/12 = $36,000	$ 36,000
31/12/2016	$96,000-$36,000 = $60,000	$60,000/4*2 = $30,000	$36,000+$30,000 = $66,000
31/12/2017	$60,000-$30,000 = $30,000	$30,000/4*2 = $15,000	$66,000+$15,000 = $81,000

a)

Cost of Bus	$ 96,000
Less: Salvage value	$ (6,000)
Depreciable value	$ 90,000
Useful life	5 Years
Depreciation expense per year ($90,000/5)	$ 18,000
Accumulated depreciation on December 31, 2017 ($18,000*3)	$ 54,000