Question

Exercise #3 What is depreciation of plant assets? What are the factors necessary in computing depreciation? Exercise #4 A company's property records revealed the following information about one of its plant assets: Cost Salvage Purchase Estimated Value Date Life 154,000 15,000 01/01 10 years Depreciation Method Double-declining balance Calculate the depreciation expense in Year 1 and Year 2 for the year ended December 31. Year 1 Year 2 Exercise #5 A company purchased a delivery van on January 1 of the current year at a cost of $40,000. The van is expected to last six years and has a salvage value of $2,200. The company's annual accounting period ends on December 31. 1. What is the depreciation expense for the current year, assuming the straight-line method is used? 2. What is the book value of the van at the end of the first year?

Answer 1

3)

Depreciation of plant asset is a decline in the value of plant asset over its useful life due to use or time .

There are many factors necessary in computing depreciation :

Asset cost -It is a cost incurred to make asset ready for use.

salvage value :it is a value to be realized at the end of useful life of asset.

Useful life:It is a life of asset under which it is fit for use .

Obsolescene :whether asset is still of use or become obsolete on a given date.

4)

Depreciation rate= 2/ useful life

                   = 2/10

                  = 20 or 20%

year	Book value at beginning	Depreciation expense	Accumulated depreciation	Book value at end
1	154000	154000*20%= 30800	30800	154000-30800= 123200
2	123200	123200*20%= 24640	30800+24640= 55440	123200-24640= 98560

5)

1)Depreciation expense =[Cost-salvage value ]/useful life

                     = [40000 -2200]/6

                     = 6300

2)Book value at end of year 1 =cost -Depreciation expense for current year

                         = 40000 -6300

                        = 33700