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home / study / business / accounting / accounting questions and answers / iverson company purchased a delivery truck for $45,000 on january 1, 2015. the truck was assigned ... Your question needs more information to be answered. A Chegg Expert needs more info to provide you with the best answer. See comments below. Question: Iverson Company purchased a delivery truck for $45,000 on January 1, 2015. The truck was assigned... Edit question Iverson Company purchased a delivery truck for $45,000 on January 1, 2015. The truck was assigned an estimated useful life of 5 years and has a residual value of $10,000 and the truck was assigned an estimated useful life of 100,000 miles. Using the attached Excel File, compute and label each type of depreciation expense under following independent methods. Straight line method for years 2015 and 2016. Assume you disposed of the asset on July 1, 2017 and no cash was received. Calculate the gain or loss for this disposal as of that date.

Double Declining Balance method for years 2015, 2016, and 2017. What is the book value of the truck as of December 31, 2017?

The truck was driven 18,000 miles in 2015 and 22,000 miles in 2016. Compute depreciation expense using the units-of-activity method for the years 2015 and 2016

Answer 1

Straight Line method of depreciation:

Depreciation = (cost of truck - Residual life) / Estimated useful life of the asset

= ($45000 - $10000) / 5years

= $7000

Hence, an amount of $7000 shall be the depreciation expense for year ended 31 Dec 2015, 31 Dec 2016 under straight line method.

Computation of gain or loss for disposal on July 1, 2017 :

Particulars	Amount in $
Cost of truck as on 1st Jan 2015	45000
Less: Depreciation for 2015	7000
Book value as on 1st Jan 2016	38000
Less: Depreciation for 2016	7000
Book value as on 1st Jan 2017	31000
Less : Depreciation for 6mon ( 7000 x 6/12)	3500
Net Book Value as on 1st July 2017	27500
Less: Disposal value	NIL
Loss on disposal of truck	27500

Hence loss of disposal of truck is $27500 as on July 1st 2017.

Double Declining Balance method :

Rate of depreciation under straight line method = Depreciable expense / Depreciable base x 100

= 7000 / 35000 x 100

= 20%

We can also calculate rate of depreciation using formula (1 / useful life of asset) x 100 i.e 1 / 5 x 100= 20%

Therefore rate of depreciation under double declining balance method = 20% x 2 = 40%

Particulars	Amount in $
Cost of truck as on 1st Jan 2015	45000
Less: Depreciation for 2015 (45000 x 40%)	18000
Book value as on 1st Jan 2016	27000
Less: Depreciation for 2016 ( 27000 x 40%)	10800
Book value as on 1st Jan 2017	16200
Less : Depreciation for 2017 (16200 x 40%)	6480(see note below)
Book Value as on 31st december 2017	9720(see note below)

The depreciation calculated above will decrease the book value of the asset below its estimated residual value. Therefore depreciation would only be allowed up to the point where book value = salvage value. Thus, depreciation allowed in 2017 = (16200 - 10000) = $6200. Hence book value as on 31st December 2017 will be $10000.

Units of activity method :

Depreciation per unit = (Asset cost - salvage value) / Estimated life in units

= (45000 - 10000) / 100000 miles

= $0.35 / unit

Depreciation for period 2015 = 18000 miles x 0.35

= $6300

Depreciation for period 2016 = 22000 miles x 0.35

= $7700