Question

Speedy Delivery Company purchases a delivery van for $41,600. Speedy estimates that at the end of its four-year service life, the van will be worth $6,000. During the four-year period, the company expects to drive the van 222,500 miles. Actual miles driven each year were 58,000 miles in year 1 and 64,000 miles in year 2.

Required:

Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)

Answer 1

Calculation of annual depreciation
rate of depreciation = 1/ 4years*2
rate of depreciation = 50%
Year	Annual depreciation
1	20500	41000*50%
2	10250	(41000-20500)*50%

Answer 2

Straight line Depreciation = (Original value - Salvage Value) / Useful life
= ($41600 - $6000) / 4 = $8900 per year

Year	Annual Depreciation
1	$          8,900
2	$          8,900

Double Declining Balance method = Beginning Book Value x 2 times straight line rate
Straight line rate = 1/4 x 100 = 25%

Depreciation
Year 1 = $41600 x 50% = $20800
Year 2 = ($41600 - $20800) x 50% = $10400