Question

Goneales Andrea Chapter 8-Exercise A delivery truck costs $20,000 and has an estimated residual value of $2,000 at the end of its estimated useful life of five years. Assume the truck was used 20,000 miles during year 1; 30,000 miles during year 2; 10,000 miles during year 3; 20,000 miles during year 4; and 10,000 miles during the fifth year. Calculate Depreciation Expenses for each year using: (a) Straight-Line Method (b) Units of Production Method (c) Double-Declining-Balance Method (a) Straight-Line Method Depreciation Expense Year 3 4 5 (b) Units of Production Method Depreciation Expense Year 1 2 4

Answer 1

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	Ans a)	Straight line depreciation
		Total Cost		20000
		Expected Life (in years)		5
		Salvage Value		2000
		Total Depreciation		18000
	Year	Rate	Depreciation	Accumulated Depreciation	Book Value
	1	1/5	$3,600	$3,600	$16,400
	2	1/5	$3,600	$7,200	$12,800
	3	1/5	$3,600	$10,800	$9,200
	4	1/5	$3,600	$14,400	$5,600
	5	1/5	$3,600	$18,000	$2,000
	Ans b)	Unit of production method
		Computation of depreciation expenses per unit
		Depreciation per unit (mile) = (Total cost - salvage value) / total mile
		Total mile =	20000+30000+10000+20000+10000			92800
			90000
		Depreciation per mile =	18000/90000
			0.20	per mile
		year	Depreciation
		1	40000	200000*.2
		2	60000	300000*.2
		3	20000	100000*.2
		4	40000	200000*.2
		5	20000	100000*.2
	Ans c)	Double declining balance method
			Total Cost		$20,000.00
			Expected Life (in years)		5
			Salvage Value		$2,000.00
			Total Depreciation		$18,000.00
		Depreciation Schedule: Double-Declining-Balance Method
		Year	Rate	Depreciation expense	Accumulated Depreciation	Book Value
		1	2/5	$8,000	$8,000	$12,000
		2	2/5	$4,800	$12,800	$7,200
		3	2/5	$2,880	$15,680	$4,320
		4	2/5	$1,728	$17,408	$2,592
		5		$592	$18,000	$2,000