Question

AP8-5B (Calculation of depreciation; three methods) Engvoll Inc. purchased a transport truck for $196,000. The company expected the truck to have a useful life of eight years or 230,000 kilometres, with an estimated residual value of $12,000 at the end of that time. During the first and second years, the truck was driven 29,400 and 31,600 kilometres, respectively. Required Calculate the depreciation expense for the second year under the straight-line, units-of-production, and double-diminishing-balance methods.

Answer 1

Solution

Year	Straight line	Units of Production method	Double declining balance
2	$           23,000.00	$         25,280.00	$          36,750.00

Working

Straight line Method -For year 1 and 2
A	Cost	$ 196,000
B	Residual Value	$ 12,000
C=A - B	Depreciable base	$ 184,000
D	Life [in years left ]	8
E=C/D	Annual SLM depreciation	$ 23,000.00

.

Units of Production method
A	Cost	$ 196,000
B	Residual Value	$ 12,000
C=A - B	Depreciable base	$ 184,000
D	Usage in units(in Hours)	230000
E	Depreciation per hour	$                        0.80

.

Depreciation schedule-Units of Activity
Year	Book Value	Usage	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$              196,000	29400	$                   23,520	$                    23,520	$             172,480
2	$              172,480	31600	$                   25,280	$                    48,800	$             147,200

.

Double declining Method
	Cost	$ 196,000
B	Residual Value	$ 12,000
C=A - B	Depreciable base	$ 184,000
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$ 23,000
F=E/C	SLM Rate	12.50%
G=F x 2	DDB Rate	25.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$ 196,000	25.00%	$ 49,000	$ 49,000	$ 147,000
2	$ 147,000	25.00%	$ 36,750	$ 85,750	$ 110,250