Question

On January 1, 2021, the Excel Delivery Company purchased a delivery van for $45,000. At the end of its five-year service life, it is estimated that the van will be worth $4,200. During the five-year period, the company expects to drive the van 136,000 miles.

Required:
Calculate annual depreciation for the five-year life of the van using each of the following methods.

1. Straight line.

2. Double-Declining Balance

Answer 1

Requirement 1 Computation of Depreciation under Staright line method: Cost Less : Salvage Value Depreciable value (A) Asset life (B) Annual Straight line depreciation value (A/B) 45,000.00 (4,200.00) 40,800.00 5 years 8,160 $ Depreciation for year 1 Depreciation for year 2 Depreciation for year 3 Depreciation for year 4 Depreciation for year 5 8,160 8,160 8,160 8,160 8,160 Note : Depreciation for every year will be same under straight line method Requirement 2 Computation of Depreciation under Double Declining Balance method: Cost 45,000.00 Less : Salvage Value (4,200.00) Depreciable value (A) 40,800.00 20.00% Annual Staright line depreciation rate = 8160/40800 Double Declining factor Double Declining Annual rate 200% 40.00% Year 1 $ 2 3 Beginning Balance 45,000.00 $ 27,000.00 $ 16,200.00 9,720.00 5,832.00 Double Declining Annual Annual depreciation amount Ending Balance 40.00% $ 18,000 $ 27,000 40.00% $ 10,800 $ 16,200 40.00% 6,480 $ 9,720 40.00% $ 3,888 $ 5,832 40.00% $ 1,632 $ 5 $ Note : Since in the Last year salvage value is $4200 Depreciation expense will be $5832-$4200 = $1632