PROBLEM #1 The Ament Company purchased a van for $35,000. The van has an expecte

Question

PROBLEM #1 The Ament Company purchased a van for $35,000. The van has an expected life of five years. At the end of the five years, the van is estimated to be worth $5,000. REQUIRED: Determine the DEPRECIATION EXPENSE for each of the five years under each of the following depreciation methods. There will be 26 answers. Straight line Sum-of-the-years' digits Double-declining balance MACRS The rates for MACRS are as follows: 1st year 20% 2nd year 32% 3rd year-19.2% 4th year = 11.52% 5th year = 11.52% 6th year = 5.76% Units of Production The van is expected to run for 100,000 miles. (Scrap of $5,000.) Year #114,000 miles Year #2 23,000 miles Year #3-17,000 miles Year #4 = 28,000 miles Year #5 = 20,000 miles (Be Careful!) ST-Line S-O-Y-D D-D Bal MACRS UNITS/PROD Year #1 - Year #2 Year #3 Year #4 Year #5 Year #6

Explanation / Answer

a) Straignt line Depreciation = (Cost - Salvage value / Life of asset

= (35000 - 5000 ) / 5 = 6000 Annually

b) SOYD =

c) Double declining method

Rate of Depreciation = 2 * ( 1 / Life) = 2 * ( 1 /5) = 40 %

d)

e)

Year Depreciation Base Depreciation Factor Depreciation expense 1 30000 5/15 10000 2 30000 4/15 8000 3 30000 3/15 6000 4 30000 2/15 4000 5 30000 1/15 2000

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