Question

Speedy Delivery Company purchases a delivery van for $41,600. Speedy estimates that at the end of its four-year service life, the van will be worth $6,000. During the four-year period, the company expects to drive the van 222,500 miles.

Actual miles driven each year were 58,000 miles in year 1 and 64,000 miles in year 2.

  

Required:

Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)

  
1. Straight-line.

Year Annual Depreciation

1

2

2. Double-declining-balance.

Year Annual Depreciation

1

2

   
3. Activity-based.

Year Annual Depreciation

1

2

Answer 1

1.

Straight line Method
Cost of delivary van	$ 41,600
Less: residual value	$    6,000
Depreciable value	$ 35,600
Depreciation ($35,600 / 4)	$    8,900
Depreciation expense for Year 1	$    8,900
Depreciation expense for Year 2	$    8,900

2.

Depreciation under DDB Method
Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
Year 1	$                          41,600	$                                                20,800	$                         20,800
Year 2	$                          20,800	$                                                10,400	$                         10,400

3.

Depreciation under Activity based Method
Year - a	Depreciable value - b ($41,600-$6,000)	Number of units produced - c	Depreciation expense - d = b/222,500*c
Year 1	$                        35,600	58,000	$                               9,280
Year 2	$                        35,600	64,000	$                             10,240