Question

On January 1, 2018, Air Asias purchased a used airplane for $30,500,000. Air Asias expects the plane to remain selt for five years (4.000.000 miles and to have a residual value of 6.500.000 The company expects 1.100.000 miles the first year. Read the requirements p Requirement 1a, Compute Air Asia's first year depreciation expense on the plane using the right in method Begin by selecting the formula to calculate the company's first-year depreciation expense on the plane using the straighting method. Then enter the amounts and collate the depreciation for the first year Straigne depreciation Requirement 1b. Compute Air Asias's first-year depreciation expense on the plane using the units of production method. Before calculating the first year depreciation expense on the plane using the units of production method, calculate the depreciation expense per unit. Select the formula, then enter the amounts and calculate the depreciation ) - Depreciation per unit Now, select the formula, enter the amounts, and calculate the company's first-year depreciation expense on the plane using the units of production method - Units-of-production depreciation Requirement 1c. Compute Air Asia's first-year depreciation expense on the plane using the double-declining balance method Begin by selecting the formula to calculate the company's first-year depreciation expense on the plane using the double-declining balance method. Then enter the amounts and calculate the depreciation expense for the first items with a zero value.) Double-dedining balance depreciation Choose from any list or enter any number in the input fields and then continue to the next question Save for Later

Answer 1

1. a. Straight line method depreciatiom expense = ( Purchase price - residual value ) ÷ Useful life = ( $30,500,000- $6,500,000 ) / 5= $4,800,000 per year.

b. Units of production method

Depreciation per unit = ( Purchase price - residual value ) ÷ Total miles = ( $30,500,000 - $6,500,000 ) ÷ 4,000,000 miles = $6 per mile.

Depreciation expense for the first year = Depreciation per mile × Miles in first year = $6 × 1,100,000 = $6,600,000

c. Double declining balance depreciation = Book value of the asset × ( 100% / useful ife ) × 2= $30,500,000 × ( 100% / 5 ) × 2 = $9,600,000.

2. Book value under straight line basis = cost - accumulated depreciation = $30,500,000 - $4,800,000 = $25,700,000

Book value under units of production method = Cost - accumulated depreciation = $30,500,000 - $6,600,000 = $23,900,000

Book value under double declining method = Cost - accumulated depreciation = $30,500,000 - $9,600,000 = $20,900,000