In: Accounting
Natalie is also thinking of buying a van that will be used only for business. The cost of the van is estimated at $38,500. Natalie would spend an additional $2,500 to have the van painted. In addition, she wants the back seat of the van removed so that she will have lots of room to transport her mixer inventory as well as her baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,500. She expects the van to last her about 5 years, and she expects to drive it for 100,000 miles. The annual cost of vehicle insurance will be $2,400. Natalie estimates that at the end of the 5-year useful life the van will sell for $6,500. Assume that she will buy the van on August 15, 2015, and it will be ready for use on September 1, 2015. Natalie is concerned about the impact of the van’s cost on her income statement and balance sheet. She has come to you for advice on calculating the van’s depreciation. (what impact will the three methods of depreciation on Natalie's balance sheet at December 31 2017)
Straight Line | Double Declining Balance | Units of Activity | ||
Cost of Asset | ||||
Accumulated Depreciation | ||||
Net Book Value | ||||
Depreciation Expense |
Lowest amount of net income =
Lowest amount of owner's equity=
Lowest net book value =
Greatest amount of net income =
Greatest amount of owner's equity=
Greatest net book value =
Straight Line | Double Declining Balance | Units of Activity | |
Cost of Asset | 42,500 | 42,500 | 42,500 |
Accumulated Depreciation | 16,800 | 29,240 | 16,800 |
Net Book Value | 25,700 | 13,260 | 25,700 |
Depreciation Expense | 7,200 | 8,840 | 7,200 |
Please note for Unit of Activity Depreciation the activity per year is not given in the question. So I have assumed it to be equal every year. If no please comment will unit of Activity per (No. of miles driven each year) so that i can help you give correct Depreciation.
Cost of Van | 38,500 |
Paint | 2,500 |
Back Seat Change | 1,500 |
Total Cost of Van | 42,500 |
Salvage Value | 6,500 |
Depreciable Amount | 36,000 |
Straight Line Depreciation-2015 | 2,400 |
Straight Line Depreciation-2016 | 7,200 |
Straight Line Depreciation-2016 | 7,200 |
Accumulated Depreciation | 16,800 |
Double Declining Balance | |
Total Cost of Van | 42,500 |
Double Declining Rate | 40% |
Depreciation-2015 | 5,667 |
WDV-2015 | 36,833 |
Depreciation-2016 | 14,733 |
WDV-2016 | 22,100 |
Depreciation-2017 | 8,840 |
WDV-2017 | 13,260 |
Units of Activity | |
Total Cost of Van | 42,500 |
Salvage Value | 6,500 |
Depreciable Amount | 36,000 |
Total Miles | 100,000 |
Miles Each Year-2015 | 6,667 |
Miles Each Year-2016 | 20,000 |
Miles Each Year-2017 | 20,000 |
Depreciation-2015 | 2,400 |
Depreciation-2016 | 7,200 |
Depreciation-2017 | 7,200 |
Lowest amount of net income = | Double Declining Balance |
Lowest amount of owner's equity= | Double Declining Balance |
Lowest net book value = | Straight Line & Units of Activity |
Greatest amount of net income = | Straight Line & Units of Activity |
Greatest amount of owner's equity= | Straight Line & Units of Activity |
Greatest net book value = | Straight Line & Units of Activity |
Please note that the above answers will change if you give the details of Units of Activity.
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