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Question 1 (8 marks) On 1 July 2011 Sprintfast Couriers, which has a year-end of 30 June, purchased a delivery truck for use in its courier operations at a cost of $65 000. At the end of the trucks useful life it is expected to have a residual value of $5000. During its six-year useful life, Sprintfast Couriers Limited expected the truck to be driven 246 000 kilometres. Required Calculate the annual depreciation charge for each of the six years of the trucks life using the following methods: (a) the straight-line method (b) the sum-of-digits method (c) the declining-balance method (d) the units-of-production method using kilometres as the basis of use and assuming the following usage: Year 2012 2013 2014 2015 2016 2017 28 000 34 000 42 000 55 000 68 000 19 000 246 000

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Sol: 1. a) Straight Line Method (S.L.M): Cost Of Assets $65000 Residual value = $5000 Useful life of asset 6 Yrs. Formula: Depreciation (Cost of Assets - Salvage Value)/useful life of assets. Therefore, Annual Depreciation of the machine-(65000 5000)/6 So, this depreciation will be chagered to asset every year at 10000. 10000 P.ab) Sum of the Year digits Method Formula: Depreciation Remaining useful life of asset /sum of the years digits*Depreciation cost Remaining life of asset Book value 42857.14 28571.43 17142.86 8571.43 2857.14 0.00 Year Depreciation Base 60000 (65000 5000) 60000 60000 60000 60000 Depreciation Fraction Depreciation expense 6/21* 5/21* 4/21* 3/21* 2/21* 1/21* 17142.86 14285.71 11428.57 8571.43 5714.29 2857.14 4 Amounts has been rounded it off to Nearest Two Digits. 1 2+3+4+5+6 21c) Declining Balance Method: Calculation of rate of depreciation: (Using S.L.M, Depreciation Rate as been Calculated) Therefore, Rate of Depreciation = Depreciation of asset as per S L M / (cost of asset-Residual value) * 100 Rate of Depreciation 10000/ 60000 100 16.67% Rate of Depreciation 16.667% 16.667% 16.667% 16.667% 16.667% 16.667% Book value 50000.00 41666.66 34722.22 28935.18 24112.65 20093.87 Year Depreciation Cost 1 60000 ( 65000 5000) 49999.998 41666.66 34722.22 28935.18 24112.65 Depreciation expense 10000.00 8333.33 6944.45 5787.04 4822.53 4018.78 4 Amounts has been rounded it off to Nearest Two Digits So, Depreciation will be charged to asset at 10000,8333.33,6944.45,5787.04,4822.53 and 4018.78 to the years 1 to 6 respectivelyd) Units of production Method: Cost Of Assets $65000 Residual value $5000 Total Numbers of Kilometers to be performed 246000 Kilometers. Formula: Depreciation (cost of asset Residual Value) Use of Truck performed ( in Kilometers) Total Number of Kilometers Year Depreciation Base No. of Kilometers operates Depreciation (P.a) 1 60000 (65000-5000) 28000 34000 42000 6829.27 8292.68 10243.90 13414.63 16585.37 4634.15 4 60000 60000 68000 19000 246000 Total Amounts has been rounded it off to Nearest Two Digits. So, Depreciation will be charged to asset at 6829.27,8292.68,10243.9,13414.63,16585.37 and 4634.15 to the years 1 to 6 respectively

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