Question

Assume that at the beginning of 2017, Air France purchased a Bombardier Q400 aircraft at a cost of $25,000,000. Air France expects the plane to remain useful for five years (4,700,000 km) and to have a residual value of $6,250,000. Air France expects the plane to be flown 800,000 km the first year, 1,250,000 km each year during years 2 through 4, and 150,000 km the last year. 1. Compute Air France's first-year depreciation on the plane using the following methods: a. Straight-line b. Units-of-production c. Double-diminishing-balance 2. Show the airplane's carrying amount at the end of the first year under each depreciation method. Requirement 1. Compute Air France's first-year depreciation on the plane. a. Using the straight-line method, depreciation is $ 1. b. Using the units-of-production method, depreciation is $ (Hold all decimals during interim calculations. Round the final solution to the nearest whole number.) c. Using the double-diminishing-balance method, depreciation is $ 7. Requirement 2. Show the airplane's carrying amount at the end of the first year under each depreciation method. (Use parentheses or a minus sign when subtracting numbers.) Units-of- Production Double-Declining- Balance Carrying amount: Straight-Line Cost Less: Accumulated depreciation Carrying amount Enter any number in the edit fields and then continue to the next question

Answer 1

(A)

Under straight line method of depreciation,

Depreciation per annum = (initial cost - salvage value)/useful life

= ($25,000,000 - $6,250,000)/5

= $3,750,000

For first year:

Depreciation expenses = $3,750,000

and,

cost - accumulated depreciation = carrying amount

= $25,000,000 - $3,750,000 = $21,250,000

(B)

Under units of production method,

Depreciation per annum = (initial cost - residual value) x (units produced during the year/estimated total production units)

Therefore,

For first year:

Depreciation = ($25,000,000 - $6,250,000) x (800,000/4,700,000) = $3,191,489

and,

cost - accumulated depreciation = carrying amount

= $25,000,000 - $3,191,489 = $21,808,511

(C)

Under double declining balance method,

Depreciation per annum = 2 x straight line depreciation percentage x book value at the beginning of period

And,

Straight line depreciation percentage = 100%/useful life = 100%/5 = 20%

Therefore,

For first year,

depreciation expense = 2 x 20% x $25,000,000 = $10,000,000

and,

cost - accumulated depreciation = carrying amount

= $25,000,000 - $10,000,000 = $15,000,000