Question

Jackal Energy purchased a transport truck on January 1, 2017, for $214,600 cash. Its estimated useful life is five years or 220,000 kilometres with an estimated residual value of $47,400.

Required:
Calculate depreciation expense for the year ended December 31, 2017, using each of the following methods:

a. Straight-line
b. Double-declining-balance
c. Units-of-production (assume 26,000 kilometres were actually driven in 2017).

Method Depreciation expense

A) straight line  
B) double declining balance

C) units of production

Analysis component:

Which depreciation method will produce the highest profit for Jackal in 2017?

Highest profit in 2017?

Answer 1

Ans. A	Straight line depreciation = (Cost of asset - Residual value) / Useful life in years
		($214,600 - $47,400) / 5
		$167,200 / 5
		$33,440
Ans. B	Double declining balance method:
	Double declining balance depreciation rate = 2 * 1 / life of assets
		2 * 1 / 5
		0.40
	Date	Remaining value at the beginning (a)	Depreciation (b = a*0.40)	Book value at the end (a - b)
	2017	$214,600	$85,840	$128,760
	Depreciation =   $85,840
Ans. C	Units of production depreciation = (Cost of asset - Residual value) / Expected activity * Actual activity
		($214,600 - $47,400) / 220,000 * 26,000
		$167,200 / 220,000 * 26,000
		$19,760
Ans. 2	The units of production method of depreciation will produce the highest profit because it has a
	lowest depreciation.
	Depreciation is an expense and lower expenses always produce higher income.