Question

What is the annual depreciation expense that we can take on our tax return based on the following data?

The SL method formula is – (Cost – salvage)/Life; Productivity unit method formula is ( (Cost – Salvage )/Estimated Life ) * # of miles driven in the year-

Cost of GM truck $55,000

Salvage value $5,000

Estimated Life 5 years or 150,000 miles

Drove the truck 80,000 miles in year 1.

Using straight-line method -What is our depreciation expense in year one? What is our book value – at the end of year-one? - Discuss

Using the production unit method - What is our depreciation expense in -year one? What is our book value – at the end of year-one?

Answer 1

Answers

• Straight Line method

A	Cost	$            55,000.00
B	Residual Value	$              5,000.00
C=A - B	Depreciable base	$            50,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$            10,000.00

>Depreciation expense in Year 1 = $ 10,000
>Book Value at the end of Year #1 = $ 55000 – 10000 = $ 45,000

• Production Unit Method

A	Cost	$            55,000.00
B	Residual Value	$              5,000.00
C=A - B	Depreciable base	$            50,000.00

>Depreciation Expense in Year #1 = 80000 miles x ($50000 / 150000 miles) = $ 26,666.67 or $ 26,400(if rate rounded off)
>Book Value at the end of Year #1 = $ 55000 – 26400 = $ 28,600 or ($28333)