Question

On January 1st 2010, SRC company paid cash to purchase an automobile. The car dealer gave SRC $1,000 cash discount off of a $19,000 list price. However SRC paid an additional $2,000 to equip the automobile with more luxurious interior so would have a greater appeal to a client's. SRC expect the automobile to have a 4-year useful life and to lease it for 100,000 miles before disposing of it. SRC also estimates a salvage value of $4,000. SRC Lisa automobile to customers who drove it 30,000 miles(2010), 10,000 miles(2011), 40,000 miles (2012), and 25,000 miles (2013), during 2010, 2011, 2012, and 2013.

Compute the annual depreciating expense

XB5 FILE . HOME . INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW X Cut Number Copy Arial - 12AA B IU.E. A. Font Weap Text Merge & Center - Paste . E $ Format Painter Clipboard 1 Cost 2 Useful life 3 Expected usage 4 Cost per mile 5 Salvage value 6 Purchase date years miles per mile 9 Straight-Line 2010 2011 2012 2013 10 Depreciation Expense 11 Accumulated Depreciation 12 NBV 13 Double-Declining 15 Balance 2010 2011 2012 2013 16 Depreciation Expense 17 Accumulated Depreciation 18 NBV 2010 2011 2012 2013 21 Units of Production 22 Miles driven 23 Depreciation Expense 24 Accumulated Depreciation 25 NBV 26 27 Demo 8-1 Scenario Demo 8-1 FORMAT READY

for the automobile for 2010- 2013 by completing the following depreciation methods

1. straight line
2. double declining balance
3. units of production

Answer 1

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SRC Company
Workings		Note
Purchase cost of automobile	19,000.00	G
Add: Cost of luxurious interior	2,000.00
Total cost of automobile	21,000.00
Less: Residual Value	4,000.00
Depreciable Cost	17,000.00	A

Straight Line Method			Straight Line Method	2010	2011	2012	2013
Depreciable Value	17,000.00	See A	Depreciation Expense	4,250.00	4,250.00	4,250.00	4,250.00
Life	4.00	B	Accumulated depreciation	4,250.00	8,500.00	12,750.00	17,000.00
Annual depreciation	4,250.00	C=A/B	NBV	16,750.00	12,500.00	8,250.00	4,000.00
Double Declining Method			Double Declining Method	2010	2011	2012	2013
Total cost of Truck	21,000.00	See G	Depreciation Expense	10,500.00	5,250.00	1,250.00	-
Life	4.00	See B	Accumulated depreciation	10,500.00	15,750.00	17,000.00	17,000.00
Annual depreciation	5,250.00	H=G/B	NBV	10,500.00	5,250.00	4,000.00	4,000.00
Depreciation rate	25.00%	I=H/G
Double Declining Depreciation %	50.00%	J=I*2

Please note that under Double Declining Method the asset is depreciated till it reaches its salvage value. Then depreciation is stopped so there is no depreciation for 2013.

Also if we use 50% depreciation rate then depreciation for 2012 will be $ 2,625 but it will reduced the book value to $ 2,625 and it should not be less than $ 4,000 so depreciation for 2012 is $ 1,250.

Units of Production Method			Date	2010	2011	2012	2013
Depreciable Value	17,000.00	See A	Miles driven	30,000.00	10,000.00	40,000.00	25,000.00
Life (miles)	100,000.00	P	Depreciation Expense	5,100.00	1,700.00	6,800.00	3,400.00
Depreciation per unit	0.17	Q=P/A	Accumulated depreciation	5,100.00	6,800.00	13,600.00	17,000.00
			NBV	15,900.00	14,200.00	7,400.00	4,000.00

Please note that the asset is depreciated till it reaches its salvage value.

So we use $ 0.17 per mile then depreciation for 2013 will be $ 4,250 but it will reduced the book value to $ 3,150 and it should not be less than $ 4,000 so depreciation for 2013 is $ 3,400.