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19 February, 17:17

Speedy Delivery Company purchases a delivery van for $28,000. Speedy estimates that at the end of its four-year service life, the van will be worth $4,000. During the four-year period, the company expects to drive the van 120,000 miles.

Actual miles driven each year were 28,000 miles in year 1; 32,000 miles in year 2; 20,000 miles in year 3; and 24,000 miles in year 4. Note that actual total miles of 104,000 exceed expectations by 4,000 miles

Required:

Calculate annual depreciation for the four-year life of the van using each of the following methods.

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Answers (1)
  1. 19 February, 18:40
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    1. Straight-line. Year: Annual Depreciation : $ 24,000

    2. Double-declining-balance. Year: Annual Depreciation: $ 26,000

    Explanation:

    I think your question is missed of key information, allow me to add in and hope it will fit the original one.

    Calculate annual depreciation for the four-year life of the van using each of the following methods:

    1. Straight-line. Year: Annual Depreciation12

    2. Double-declining-balance. Year: Annual Depreciation12

    My answer:

    Cost of the van: $28,000

    Salvage Value at end of life: $4,000

    Depreciation on a straight line basis is calculated thus:

    Cost - Residual value / useful life

    = (28,000 - 4000) / 4

    = 6,000 per year

    The depreciation amount is same for year 1 and year 2 is $6,000

    So we have:

    Cost of delivery van $ 28,000

    Salvage Value at end of life ($ 4,000)

    Depreciable value $ 24,000

    Depreciation on double declining method is calculated

    100% / useful life

    100%/4*2 = 50

    Cost - residual value * 50%

    = $28,000 - $4,000*0.5 = $26000

    The depreciation amount is same for year 1 and year 2 is $26000/2 = $13,000

    So we have:

    Cost of delivery van $ 28,000

    Salvage Value at end of life ($ 2,000)

    Depreciable value $ 26,000
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