Question

South Airlines purchased a 747 aircraft on January 1, 2014, at a cost of $35,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000. On January 1, 2017 the airline revises the total estimated useful life to 15 years with a revised salvage value of $3,500,000. 

Compute the depreciation and book value at December 31, 2016 using the straight-line method and the double-declining-balance method 

Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2017. 

Depreciation Expense = _______ 

Answer 1

Straight Line
Cost		$ 35,000,000.00
Salvage Value		$   5,000,000.00
Depreciable Cost		$ 30,000,000.00
Useful Life		20	years
Depreciation Expense per years		$   1,500,000.00
		Depreciation	Accumulated
Year	Cost	Expense	Depreciation	Book value
2014	$ 35,000,000.00	$   1,500,000.00	$ 1,500,000.00	$ 33,500,000.00
2015	$ 35,000,000.00	$   1,500,000.00	$ 3,000,000.00	$ 32,000,000.00
2016	$ 35,000,000.00	$   1,500,000.00	$ 4,500,000.00	$ 30,500,000.00

Double Declining
Useful Life		20	years
Depreciation Rate		(100% / 20 years) x 2
	=	10%
		Beginning		Depreciation	Accumulated
Year	Cost	WDV	Rate	Expense	Depreciation	Book value
2014	$ 35,000,000.00	$ 35,000,000.00	10%	$ 3,500,000.00	$ 3,500,000.00	$ 31,500,000.00
2015	$ 35,000,000.00	$ 31,500,000.00	10%	$ 3,150,000.00	$ 6,650,000.00	$ 28,350,000.00
2016	$ 35,000,000.00	$ 28,350,000.00	10%	$ 2,835,000.00	$ 9,485,000.00	$ 25,515,000.00

Depreciation Expense
Book Value as on Jan 1 , 2017				$ 30,500,000.00
Revised salvaged value				$ 35,00,000.00
Depreciable cost				$ 27,000,000.00
Remaining useful life				12 years		(15 years - 3 years)
Revised annual depreciation				$   2,250,000.00