Question

Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $12,600. They expect to use the Suburban for five years and then sell the vehicle for $4,800. The following expenditures related to the vehicle were also made on July 1, 2022 • The company pays $1,950 to GEICO for a one year insurance policy. • The company spends an extra $3,600 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. . An additional $2,150 is spent on a deluxe roof rack and a trailer hitch. The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. In addition, on October 22, 2022, the company pays $700 for basic vehicle maintenance related to changing the oil replacing the windshield wipers, rotating the tires, and inserting a new air filter.

Answer 1

Calculation of the amount of depreciation: - Wepreciation - Cost of the asset - Salvage Value useful life of the asset Cost of the aset = $12,600 +63600+$2150 Cost of the asset => "$ 18,350 Salvage Value - $4800 and life of the asset 5 years, Note: i $3600 is the amount spent on the Vehicle to repaint the vehicle placing the Great Adventures logo on the front hood, back and both sides is a capital expenditure and hence addood to the cost of the aset. (11) $ 2150 is the amount spent on deluxe roof rack and trailer hitch is also termed as a capital expenditure as it is increasing the feasibility and is in long term usage. 1) $1950 is the amount paid to GET.CO for a one-year I insurance policy which is a prepaid or period expense which should not be capitalised

(iv) It is also given that the painting, roof rack and Mitch are all expected to increase the future benefits of the vehicle and here they are capitalised. Cu The company paid $700 on octobes 22,2022 for baric vehicle maintainence relating to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter. Since, these maintainence costs are done for time to time and are short term in nature they are not capitalised and not added to the cost of the asset Repreciations Cost of the asset - Salvage Value useful life of the asset >>$18,350 - $4800 => 13550 Depreciation >$2710. Preparation of depreciation schedule using the straight line mosthod . Great Aduentures (and of year amounts) Year Depreciation Grbense (Acumulated debereciation(s) Book Values 2022 2,710 15,640 2023 2,710 5,420 12,930 2024 2.710 8, 130 10,220 2025 2710 10,840 7,510 2026 2710 13,55o 4800 2027 2,710 Total $13,550