Question

A small truck is purchased for $52,000. It is expected to be of use to the company for 6 years, after which it will be sold for $9,000. Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset’s life, for the following methods :

1) Use straight-line depreciation

2) Use double declining balance depreciation [Note! Manually calculated values of d_t (Depreciation Deduction) would normally be adjusted such that B_t (Unrecovered Investment) does not go below the salvage value. Ignore these adjustments in this case.]

3) Use sum-of-years’-digits depreciation

Answer 1

• All working forms part of the answer
• Working for each depreciation method

Cost	$52000
(-) Salvage value	$9000
Depreciable base	$43000
Life (in years)	6
SLM Annual Depreciation [43000/6]	7166
SLM Rate [7166/43000]	16.67%
Double declining rate [16.67% x2]	33.33%
Sum of Years [1+2+3+4+5+6]	21

• Answer: Depreciation each year with each method

		Double Declining Balance method			Sum of Year Digits method
Year	Straight Line Depreciation	opening balance	Depreciation expense at 33.33%	Closing balance	Calculation	Depreciation expense
1	7167	52000	17332	34668	43000 x 6/21	12286
2	7167	34668	11555	23113	43000 x 5/21	10238
3	7167	23113	7704	15410	43000 x 4/21	8190
4	7167	15410	5136	10274	43000 x 3/21	6143
5	7167	10274	1273	9000	43000 x 2/21	4095
6	7167	9000		9000	43000 x 1/21	2048
Total Depreciation expense	$43000		$43000			$43000