Question

Exercise 11-1 Depreciation methods [LO11-2] On January 1, 2018, the Excel Delivery Company purchased a delivery van for $75,000. At the end of its five-year service life, it is estimated that the van will be worth $7,800. During the five-year period, the company expects to drive the van 224,000 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:

1.

Straight- Line

????

Per Year

2.

Year	Depreciation
2018
2019
2020
2021
2022
Total

3.

Year	Depreciation
2018
2019
2020
2021
2022
Total

4.

Year	Miles	Depreciation
2018	49,280
2019	53,760
2020	33,600
2021	44,800
2022	47,040,
Total

Answer 1

Cost of the Van 75000 Less : Salvage Value 7800 Depreciable Value of the Machine 67200 Life of the Machine Life of the Machine (Units) 224000 Straight Line Method Annual Depreciation : Depreciable Value / Life annual Depreciation :67200/5 13440 Sum of the Years Digits Depreciation Year & Depreication Fraction Depreciation Function 2018 22400 (5/15) 2019 17920 (4/15) 2020 13440 (3/15) 2021 8960 (2/15) 2022 4480 (1/15) Double Declining balance Method Rate of Depreciation = (1/ Life) *2 Depreciation Rate = (1/5)*2 40% Depreciation

Double Declining balance Method Year alon Book Value Depreciation % 75000 40% 45000 40% 27000 40% 16200 40% 9720 20% Depreciation Book value 30000 18000 10800 6480 1920 45000 27000 16200 9720 7800

Double Declining balance Method Depreciation Year Expenses 2018 30000 2019 18000 2020 10800 2021 6480 2022 1920 Units of Activity Method Annual Depreciation : Depreciable Value / Life Depreciation Per unit : 67200/224000 Units of Activity Method Year Hours 2018 49280 2019 53760 2020 33600 2021 44800 2022 42560 Total 0.30 Depreciation 14784 16128 10080 13440 12768 67200