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6 April, 07:34

Speedy Delivery Company purchases a delivery van for $36,000. Speedy estimates that at the end of its four-year service life, the van will be worth $6,400. During the four-year period, the company expects to drive the van 148,000 miles. Actual miles driven each year were 40,000 miles in year 1 and 46,000 miles in year 2.

Required:

Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)

1. Straight line

2. Double-declining-balance

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  1. 6 April, 07:51
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    Answer: Straight line method is $7,400 per year.

    Double declining balance method is $ 14,800 per year.

    Explanation:

    Depreciation on a straight line basis is calculated thus:

    Cost - Residual value / useful life

    = (36,000 - 6,400) / 4

    = 7,400 per year

    Depreciation on double declining method is calculated thus:

    100% / useful life

    100%/4 = 25

    25%*2 = 50%

    Cost - residual value * 50%

    36,000 - 6,400 * 50%

    29,600 * 50%

    =$14,800 for the first and second year
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