Question

On January 1,2011, Company A purchased a vehicle costing $20,000. A certain vehicle upgrade of $3,000 was added with the purchase. Also, a delivery fee of $500 was included in the expense. The company expects the vehicle to be operational for 4 years at the end of which it can be sold for $5,000. Calculate depreciation expense for the year ended 31 Dec 2011, 2012, 2013 and 2014 using the following methods: (a) Use Straight Line Method (b) Sum of the Year’s Digit Depreciation (c) Declining Balance Method

Answer 1

SLM
Cost of Machine	20,000.00	(Snce $3000 and $500 already included)
Salvage Value	5,000.00
Life in years	4.00
Particulars	2011	2012	2013	2014
Opening Balance	20,000.00	16,250.00	12,500.00	8,750.00
Depreciation(20000-5000)/4	3,750.00	3,750.00	3,750.00	3,750.00
Closing balance	16,250.00	12,500.00	8,750.00	5,000.00
DOUBLE DECLINING METHOD:
Life	4 Years
Double decling balance method rate = 2*100%/4	50%
Particulars	2011	2012	2013	2014
Opening Balance	20,000.00	10,000.00	5,000.00	2,500.00
Depreciation at 50%	10,000.00	5,000.00	2,500.00	1,250.00
Closing balance	10,000.00	5,000.00	2,500.00	1,250.00
Sum of years digits Method
Life in years	4.00
Cost of Asset	20,000.00
Salavge Value	5,000.00
Depreciable Value =	15,000.00
sum of the years' digits depreciation calculation is = n(n+1)/2 = 4(4+1)/2 = 4*5/2 = 20/2 = 10
Year	Depreciation	WN
2011	6,000.00	15000/10 * 4
2012	4,500.00	15000/10 * 3
2013	3,000.00	15000/10 * 2
2014	1,500.00	15000/10 * 1
	15,000.00