Question

please explain why the useful life is like that aswell

iholletati P9-31A (book/static) Question Help On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of $100,000. Before placing the truck in service, Rapid spent $3,000 painting it, $600 replacing tires, and $10,400 overhauling the engine. The truck should remain in service for five years and have a residual value of $12,000. The truck's annual mileage is expected to be 32,000 miles in each of the first four years and 8,000 miles in the fifth year-136,000 miles in total. In deciding which depreciation method to use, Andy Sargeant, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance). Read the requirements, Requirement 1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. Accumulated Depreciation Book Value Begin by preparing a depreciation schedule using the straight-line method. Straight-Line Depreciation Schedule Depreciation for the Year Asset Depreciable Useful Depreciation Date Cost Cost S Life Expense 1-3-2018 114000 12-31-2018 102000 5 years = 20400 12-31-2019 81600/ 12-31-2020 12-31-2021 12-31-2022

Answer 1

Straight Line Method S Date 03-01-18 31-12-18 31-12-19 31-12-20 31-12-21 31-12-22 Depreciation for the year Depreciable Depreciation Accumulated Asset Cost Cost Useful Life expense Depreciation Book Value 114,000 102,000 IS 20,400S 20.400 S 93,600 81.600 20.400S 40,800 S 73,200 61,200 20,400 S 61,200 $ 52.800 40.800 20.400S 81,600 S 32.400 20,400 1 S 20.400 102,000S 12.000 Working Notes: Cost of Asset S Purchase Cost Painting Cost Tires Cost Overhauling Cost Cost of Asset S 100,000 3,000 600 10,400 114.000

Note: All the costs incurred till the asset is placed for service are part of total cost of asset. Depreciable Cost = Total Cost - Residual Value = $ 114000 - $ 1200 S 102,000 Depreciation per year ( Straight line ) = Depreciable cost of Equipment / Useful life = $ 102000/5= $ 20,400 Units of Production Method Date Asset Cost Depreciation for the year Depreciation Depreciation No. of Miles cost per Mile expense Accumulated Depreciation Book Value S 114,000 0.75 03-01-18 31-12-18 31-12-19 31-12-20 31-12-21 31-12-22 32000 32000 32000 32000 8000 0.75 0.75 0.75 0.75 24,000 S 24.000 $ 24,000S 24.000S 6.000 $ 24,000 S 90,000 48,000S 66,000 72,000 42,000 96,000S 18.000 102,000S 12.000 S

Working Note S Depreciable cost of Truck Total Miles of Truck can run Depreciation cost per Mile ($ 102000/136000) 102,000 136000 0.75 S Double Declining Balance method Date Asset Cost Depreciation for the year Beginning Book | Depreciation Depreciation Value % expense Accumulated Depreciation Book Value S 114,000 S 03-01-18 31-12-18 31-12-19 31-12-20 31-12-21 31-12-22 114000 68400 41040 24624 147741 40% 40% 40% 40% 40% 45.600S 27,360S 16,416 S 9,850 $ 2.774 S 45,600S 68.400 72.960 S 41,040 89,376 S 24.624 99,226 S 14,774 102.000$ 12,000 S $

Depreciation = Book value* Depreciation Rate Double Declining rate = 1/useful life x 100 x 2 1/5x100 x2 40.00% Double Declining rate = Book value of Truck at the end of the year 2021 $ Residual Value of the Van at the end of year 2022 S Depreciation for the 2022 = $ 14774 - $ 12000 = $ 2774 14,774 12,000 Note : Under Double Declining Balance method, depreciation only be allowed up to the point where book value =Residuval Value. In This Problem less Depreciation Provided instead of Actual Depreciation to maintain Residuval value at the end of year 2022.