Question

QUESTION 1 Incorrect Mark 0.00 out of 2.00 Flag question Computing Depreciation Under Straight-Line and Double-Declining-Balance A delivery van costing $18,000 is expected to have a $1,500 salvage value at the end of its useful life of 5 years. Assume that the truck was purchased on January 1, 2016. Compute the depreciation expense for 2017 (its second year) under each of the following depreciation methods: a. Straight-Line $ 4,125 X b. Double-declining-balance Check

Answer 1

A) Straight line method of depreciation- Under this method, a uniform percentage of the original cost is written off during its useful life.

Amount of depreciation under the straight-line method is computed below:

Depreciation for 2017 = (Total cost of the delivery van- salvage value) / Number of years of useful life

= ($ 18000- $ 1500)/5

= $ 3300

B) Double declining balance method of depreciation- Under this method, the rate of depreciation is basically double of the straight line depreciation rate( However, salvage value is not taken into account for the calculation of rate)

Amount of depreciation under the Double-declining balance method is computed below:

Depreciation for 2016 = Total cost of the delivery van / Number of years of useful life X 2

= $18000/5 X 2

= $ 7200

Rate of Depreciation = Depreciation Expense/ Total cost of delivery van

= $7200/ $18000 x 100

= 40 %

Depreciation for 2017= Book value at the end of 2016 X 40%

= ($ 18000-$7200)* 40%

= $ 4320

For the better understanding of Double-declining balance method,

the whole depreciation schedule is given below

Year	Book value at the beginning of the year	Rate	Depreciation	Year-end value of the asset
1	$18000	40%	$7200	$10800
2	$10800	40%	$ 4320	$6480
3	$6480	40%	$ 2592	$3888
4	$ 3888	40%	$ 1555	$ 2333
5	$ 2333	40%	$ 1833	$ 1500