Question

Depreciation Methods

A delivery truck costing $19,000 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	$Answer
b. Double-declining balance	$Answer
c. Units-of-production	$Answer

Answer 1

	Depreciation for second year under straight line method:
	Cost of the truck	$19,000
	Less: Salvage value	($1,500)
	Depreciable value of the asset	$17,500
	Useful life in years	4
	Depreciation rate per annum = 100/4 = 25%
	Depreciation expenses 2nd year ($17,500*25%)	$4,375
	Depreciation for second year under Double declaiming method:
	Depreciation rate = 2 times of straight line depreciation rate = 25%*2 = 50%
	Depreciation for 1st year = $19000*50%	9,500
	Depreciation for 2nd year ($19000-9500)*50%	4,750
	Depreciation for second year under Units produced method:
	Cost of the truck	$19,000
	Less: Salvage value	($1,500)
	Depreciable value of the asset	$17,500
	Useful life in miles = 125,000
	Truck was driven for 28,000 miles during the 2nd year
	Deprecation = (17,500*28,000/125,000)	$3,920
Ans	a. Straight-line	$4,375
	b. Double-declining balance	$4,750
	c. Units-of-production	$3,920