Question

QUESTION 2 On July 1, 2016, a company purchased a new delivery truck. The truck has a cost of $37,000, an estimated useful life of 5 years, and salvage value of $7,000. Assume that the company uses the double-declining balance method of depreciation, what is depreciation expense for 2019 OASO OB S 992 OC.$ 3,197 OD.$ 3,656 OE4,262

Answer 1

The Depreciation expense for the delivery truck for 2019 is calculated as follows:-

	DDB Depreciation for the period	End of the Period
Year	Beginning of period book value	%	Depreciation Expense	Accumulated Depreciation	Book Value
2016	37,000	40%	7,400	7,400	29,600
2017	29,600	40%	11,840	19,240	17,760
2018	17,760	40%	7,104	26,344	10,656
2019	10,656	34%	3,656	30,000	7,000

The % factor per year = 100/No.of years of estimated useful life * 2 = (100/5) *2. Depreciation % - 40%

The Depreciation expense for the year 2019 per the above calculation is Option D - $3,656. During the last year , even though the depreciation expense is $4,262 , the depreciation expense is limited to $3,656 because the salvage value of the asset is $7,000. Hence, the equipment will be depreciated upto the salvage value of the asset which gives an approximate depreciation percentage of 34%.

Option A is incorrect as there would be depreciation expense charged during 2019 based on the Double declining balance method.

Option B and Option C are incorrected based on the above calculation.

Option E is incorrect as $4,262 reflects the depreciation at the rate of entire 40% which is incorrect. Depreciation under Double declining balance method would be limited to the salvage value of the equipment at the end of Year 4.

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