Question

Speedy delivery company on Jan. 1 2021, purchased a van for $20,000. to complete the purchase, the company also incurred $800 shipping cost and $1,200 sales tax.

Speedy estimates that at the end of its the four- year service life the van will be worth 4,000. during the four year period, the company expects to drive the van 100,000 miles. actual miles driven each year were 32,000 miles in year 1; 35,000 in year 2 and 27,000 in year 3 and 6,000 miles in year 4.

A. using straight depreciation method, what is annual depreciation expense?

B. Using the double declining balance method what are the amounts of depreciation expense for year 3 and year 4?

C. using activity-based method what is the balance of accumulated depreciation at the end of year 2?  

Answer 1

A.

Straight line Method
Cost of Van	$ 22,000
Less: Salvage value	$ (4,000)
Depreciable value	$ 18,000
Life of Asset	4 Years
Annual depreciation expense ($18,000/4)	$    4,500

B.

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	$ 22,000	$                                11,000	$   11,000
Year 2	$ 11,000	$                                   5,500	$     5,500
Year 3	$    5,500	$5,500-$4,000 = $1,500	$     4,000
Year 4	$    4,000	$                                          -	$     4,000

C.

Activity Based Method Units of Activity
Cost of Asset	$ 22,000
Less: Salvage value	$ (4,000)
Depreciable value	$ 18,000
Total expected miles	100,000
Depreciation per Mile ($18,000/100,000)	$      0.18
Depreciation for Year 1 (32,000*0.18)	$    5,760
Depreciation for Year 2 (35,000*0.18)	$    6,300
Accumulated depreciation at the end of 2nd year ($5,760+$6,300)	$ 12,060

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