Question

Tasteful Pizza bought a used Toyota delivery van on January​ 2, 2016​, for $ 21,800. The van was expected to remain in service for four years left parenthesis 48,750 ​miles). At the end of its useful​ life, Tasteful officials estimated that the​ van's residual value would be $ 2,300. The van traveled 15,000 miles the first​ year, 17,000 miles the second​ year, 12,500 miles the third​ year, and 4,250 miles in the fourth year.

1. Prepare a schedule of depreciation expense per year for the van under the three depreciation methods.

2. Which method best tracks the wear and tear on the​ van?

3. Which method would Tasteful prefer to use for income tax​ purposes? Explain in detail why Tasteful would prefer this method.

Answer 1

Ques 1
Straight line
Cost	21800
Salvage value	2300
life	4	years
SLM=(Cost-salvage value)/life=	(21800-2300)/4=		4875
	so we have
	year	depriciation
	2014	4875
	2015	4875
	2016	4875
	2017	4875
	total	19500
Units of production
Cost	21800
Salvage value	2300
Miles	48750	miles
deprieciaton per mile=(Cost-salvage value)/life=			(21800-2300)/48750=		$       0.40
	so we have
Miles	year	depriciation	(miles*depreciation rate)
15000	2014	$          6,000
17000	2015	$          6,800
12500	2016	$          5,000
4250	2017	$          1,700
	total	19500
Double declining balance method=net book value * (2/useful life)
but the book value cannot go down residual value
	year
	2014	$10,900.00	DDB($B$21,$B$22,$B$6,1)
	2015	$5,450.00	DDB($B$21,$B$22,$B$6,2)
	2016	$2,725.00	DDB($B$21,$B$22,$B$6,3)
	2017	$425.00	DDB($B$21,$B$22,$B$6,4)
	total	19500
Ques 2
the units of production method tracks the wear and tear on the van most closely
Ques 3
The double decling balance method because it provides the most depriciation and
thus the largest tax deductions in the early life of the asset