Question

A delivery truck costing $26,000 is expected to have a $1,500 salvage value at the end of its useful life of four years or 125,000 miles. Assume that the truck was purchased on January 2. Calculate the depreciation expense for the second year using each of the following depreciation methods: (a) straight-line, (b) double-declining balance, and (c) units-of-production. (Assume that the truck was driven 28,000 miles in the second year.) Round all answers to the nearest dollar.

a. Straight-line      $   ?

b. Double-declining balance       $   ?

c. Units-of-production       $   ?

Answer 1

Solution :

Deprecaition expense for the second year :

Straight line method : $6,125

Deprecaition per year = Purchase price- salvage value / no of useful life in years = 26000-1500/4 = $ 6,125

Hence, 6125 would be the depreciation amount over the perod of four years. this is 25% of the depreciable cost (24,500 = 26,000 -1500)

Double declining balance : $6,500

Formulae : 2 × Straight-line depreciation rate × Book value at the beginning of the year = 2 * 25% * 26,000 for year one and likewise . since thee useful life for the asset is 4 years, the deprecaiation rate would be 25%

	Net books value
	at the beginning	Double declining	Net book value
Year	of the year	Balance - Depreciation	at the end of the year
1	26,000	13,000	13,000
2	13,000	6,500	6,500
3	6,500	3,250	3,250
4	3,250	1,625	1,625

Units of Prodcution Method : $ 5,488

Formulae :

Depreciation =	Number of Units Produced	× (Cost − Salvage Value)
	Life in Number of Units

in this cae , it depends on the number of miles driven. in the second year 28,000 miles were travelled out of the 125,000 total useful life .

hence formulae applied = 28,000/125,000 * (26000 - 1500) = $ 5,488