Question

A tractor for over-the-road hauling is purchased for $75,000.00. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,200.00. Calculate the depreciation deduction and the unrecovered investment during each year of the tractors life.

a. Use straight-line depreciation. Provide depreciation and book value for year 6. b. Use declining-balance depreciation, with a rate that ensures the book value equals the salvage value. Provide depreciation and book value for year 6. c. Use double declining balance depreciation. Provide depreciation and book value for year 6. d. Use double declining balance, switching to straight-line depreciation. Provide depreciation and book value for year 6. e. Use sum-of-years-digit depreciation. Provide depreciation and book value for year 6.

Answer 1

	Ans a
	SLM
	Depreciation per year
	(75000-3200)/6	11967
Year	Beg Book value B	Dep D	Acc Dep	Ending Book value B-D
1	75000	11967	11967	63033
2	63033	11967	23933	51067
3	51067	11967	35900	39100
4	39100	11967	47867	27133
5	27133	11967	59833	15167
6	15167	11967	71800	3200
	Depreciation for year 6	11967
	Book value for year 6	3200
ans b
	DDB rate 1/6*200%	33.33	%
Year	Beg Book value B	Dep rate	Dep D	Acc Dep	Ending Book value B-D
1	75000	33.33	25000	25000	50000
2	50000	33.33	16667	41667	33333
3	33333	33.33	11111	52778	22222
4	22222	33.33	7407	60185	14815
5	14815	33.33	4938	65123	9877
6	9877	33.33	3292	68416	6584
	So for year 6 Dep will be equal to 9877-3200=			6677
	as this makes book value equal to salvage value
	Depreciation for year 6	6677
	Book value for year 6	3200
ans c
	DDB rate 1/6*200%	33.33	%
Year	Beg Book value B	Dep rate	Dep D	Acc Dep	Ending Book value B-D
1	75000	33.33	25000	25000	50000
2	50000	33.33	16667	41667	33333
3	33333	33.33	11111	52778	22222
4	22222	33.33	7407	60185	14815
5	14815	33.33	4938	65123	9877
6	9877	33.33	3292	68416	6584
	Depreciation for year 6	3292
	Book value for year 6	6584
ans d
	DDB rate 1/6*200%	33.33	%
Year	Beg Book value B	Dep rate	Dep D	Acc Dep	Ending Book value B-D
1	75000	33.33	25000	25000	50000
2	50000	33.33	16667	41667	33333
3	33333	33.33	11111	52778	22222
4	22222	33.33	7407	60185	14815
5	14815	33.33	4938	65123	9877
6	9877	33.33	3292	68416	6584
	In year 3 it will be switched to SLM method as deprecition under SLM is more
	the DDB
	So dep would be
	(33333-3200)/4	7533
	Depreciation for year 6	7533
	Book value for year 6	3200
ans e	Sum of year digit method
	6+5+4+3+2+1	21
Year	Dep base (75000-3200)	Remaining ;ife	Dep factor	Dep D	Acc Dep	Ending Book value B-D
1	71800	6.00	6/21	20514	20514	51286
2	71800	5.00	5/21	17095	37610	34190
3	71800	4.00	4/21	13676	51286	20514
4	71800	3.00	3/21	10257	61543	10257
5	71800	2.00	2/21	6838	68381	3419
6	71800	1.00	1/21	3419	71800	3200
	Depreciation for year 6	3419
	Book value for year 6	3200