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Penny Corp. purchased a new car on March 1, 2019 for $25,000. The estimated useful life of the car was five years or 500,000

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Answer #1

Solution

1) Depreciation Calculation - Straight Line Method (SLM)

The formula for SLM = Purchase Price - Salvage value / estimated useful life of asset

Therefore, SLM = ($ 25000 - $ 5000) / 5

SLM = $ 4000 per year

For 2019, since the car is purchased during March 1, 2019 the company Penny Corp considers 1/2 year (calendar year) depreciation. So the depreciation for 2019 = $ 4000 / 2 = $ 2000.

For 2020, the full year (calendar year) depreciation is considered. So the depreciation for 2020 = $ 4000.

2) Depreciation Calculation - Usage Method (kms)

To calculate depreciation under usage method (kms), depreciation per Km need to be determined.

Depreciation per Km = Total cost of asset - Salvage value / Total life of assets (in Kilometer)

Therefore, Depreciation per Km = ($ 25000-$5000)/500000 = $ 0.04

Depreciation for the year 2019 = 120000 * $ 0.04 = $4800, since the depreciation is considered for 1/2 year the depreciation for the year 2019 will be 4800/2 = $ 2400

Depreciation for the year 2020 = 150000 * $ 0.04 = $ 6000

3) Depreciation Calculation - Double-declining balance method

Formula:- Annual depreciation = Book value * 200% / useful life of the asset

Depreciation for the year 2019 = $25000 * (200% /5) = $25000 * 40% = $10000, since the depreciation is considered for 1/2 year the depreciation of the year 2019 will be $10000/2 = $ 5000.

Book value of the car at the beginning of 2020 will $ 25000-$5000 = $20000

Depreciation for the year 2020 = $20000 * (200% /5) =$ 20000 * 40% = $ 8000

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