Question

West Coast Tours runs boat tours along the west coast of British Columbia. On March 5, 2020, it purchased, with cash, a cruising boat for $840,000, having a useful life of 10 years or 21,400 hours, with a residual value of $198,000. The company's year-end Is December 31 Required: Calculate depreciation expense for the fiscal years 2020 2021, and 2022 by completing a schedule. (Note: Depreciation is calculated to the nearest month. Assume actual hours of service were: 2020, 740; 2021,1.800; 2022, 1,555.) Depreciation Method Double Declining Straight Line Balance Year Units-of Production 2020 2021 2022

Answer 1

Year	Straight line	Double declining balance	Units of production
2020	$53,500	$140,000	$22,200
2021	$64,200	$140,000	$54,000
2022	$64,200	$112,000	$46,650

Explanation:

Depreciation as per the straight-line method:

Depreciation per annum = (Cost - Residual value) / Useful life

= ($840,000 - $198,000) / 10 years

= $64,200

For 2020 : ($64,200 / 12 months) * 10 months = $53,500.

For 2021 : $64,200

For 2022 : $64,200

Depreciation as per the double-declining balance method:

Depreciation = 2 * SLM rate * Book value at the beginning of the year

SLM rate = 1 / Useful life = 1 / 10 = 10 %

For 2020: 2 * 10 % * $840,000 * (10 months / 12 months) = $140,000.

For 2021 : 2 * 10 % * ( $840,000 - $140,000) = $140,000.

For 2022 : 2 * 10 % * ( $840,000 - $140,000 - $140,000) = $112,000.

Depreciation as per the units of production method:

Depreciation = [(Cost - Residual value) / Useful life in hours) * Actual hours in a year

For 2020 : [($840,000 - $198,000) / 21,400 hours)* 740 hours = $22,200.

For 2021 : [($840,000 - $198,000) / 21,400 hours)* 1,800 hours = $54,000

For 2022 : [($840,000 - $198,000) / 21,400 hours)* 1,555 hours = $46,650