Question

On January 1, 2018, the Excel Delivery Company purchased a delivery van for $57,000. At the end of its five-year service life, it is estimated that the van will be worth $5,400. During the five-year period, the company expects to drive the van 172,000 miles.

Required:
Calculate annual depreciation for the five-year life of the van using each of the following methods.

1. Straight line.
2. Sum-of-the-years’-digits.
3. Double-declining balance.
4. Units of production using miles driven as a measure of output, and the following actual mileage:

Answer 1

1. Straight line

Depreciation per year = ( Purchase cost - Salvage value ) / Useful life = ( $57,000 - $5,400 ) / 5 years = $10,320 per year.

2. Sum-of-the-years'-digits

Depreciable amount = $57,000 - $5,400 = $51,600.

Year	Depreciable Amount	Depreciation ratio	Depreciation
1	51,600	5/15	$17,200
2	51,600	4/15	$13,760
3	51,600	3/15	$10,320
4	51,600	2/15	$6,880
5	51,600	1/15	$3,440
15

3. Double-declining balance

Depreciation rate = 100% / Useful life = 100% / 5 years = 20%.

Double declining rate = 40%.

year	Depreciable amount for the year	Depreciation %	Depreciation Amount	Total Accumulated Depreciation
1	$57,000	40%	$22,800	$22,800
2	$57,000 - $22,800 = $34,200	40%	$13,680	$36,480
3	$34,200 - $13,680 = $20,520	40%	$8,208	$44,688
4	$20,520 - $8,208 = $12,312	40%	$4,924.8	$49,612.8
5	$12,312 - $4,924.8 = $7,387.2	40%	$1,987.2	$51,300

Depreciation for 5th year = Depreciable amount for the year 5 starting - Salvage amount = $7,387.2 - $5,400 = $1,987.2

4. Units of production using miles driven as a measure of output

Depreciable amount = Cost - salvage value = $57,000 - $5,400 = $51,600

Depreciation amount = Depreciable amount / Van's miles in 5 years = $51,600 / 172,000 miles = $0.3 per mile.

Depreciation per year = Depreciation per mile * Miles van runs in a year.