Question

Barefoot Industrial acquired a new delivery truck at the beginning of its current fiscal year. The truck cost $117,000 and has an estimated useful life of four years and an estimated salvage value of $18,000. Required: a-1. Calculate depreciation expense for each year of the truck's life using Straight-line depreciation. Depreciation expense per year a-2. Calculate depreciation expense for each year of the truck's life using Double-declining-balance depreciation. Year Depreciation Expense 11 2

Answer 1

a-1) Depreciation expense= (Original cost-Salvage value)/Estimated useful life

= ($117000-18000)/4= $24750 per year

a-2) Depreciation rate= 100/4*2= 50%

	Computation					End of Year
Year	Book Value at the Beginning of the Year	*	Depreciation Rate	=	Deprecation expense	Accumulated depreciation	Book value
1	$117000	*	50%	=	$58500	$58500	(117000-58500)= $58500
2	58500	*	50%	=	29250	(58500+29250)= 87750	(58500-29250)= 29250
3	29250	*	50%	=	14625	(87750+14625)= 102375	(29250-14625)= 14625
4

As at the end of the Year 3 the book value is $14625 which is less than the salvage value of $18000. So, the depreciation expense in the Year 3

Depreciation expense= $29250-18000= $11250

Year	Depreciation Expense
1.	$58500
2.	29250
3.	11250
4.	0

b) Net Book Value at the end of Year 3 Under Straight-line method

Accumulated depreciation at the end of the Year 3= $24750*3= $74250

Net book value at the end of Year 3= Original cost-Accumulated depreciation at the end of the Year 3

= $117000-74250= $42750

Net Book Value at the end of Year 3 Under Double-declining-balance method

Accumulated depreciation at the end of the Year 3= $58500+29250+11250= $99000

Net book value at the end of Year 3= Original cost-Accumulated depreciation at the end of the Year 3

= $117000-99000= $18000