the ncarest dolar. P-37B Determin ing asset cost, preparing depreciation schedul
ID: 2430309 • Letter: T
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the ncarest dolar. P-37B Determin ing asset cost, preparing depreciation schedules (3 methods), Learning Objectives 1, 2 and identifying depreciation results that meet management objectives On January 3, 2018, Speedy Delivery Service purchased a truck at a cost of $67,000 Before placing the truck in service, Speedy spent $3,000 painting it, $1,200 replacing Dep. Exp. $15,000 tires, and $3,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $5,100. The truck's annual mileage is expected to be 20,000 miles in each of the first four years and 12,800 miles in the fifth year-92,800 miles in total. In deciding which depreciation method to use, Alec Rivera, the gen- eral manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance). 1. Units-of-production, 12/31Explanation / Answer
Hence the cost of assets is 67000+3000+1200+3500= $74700
Accumulated depreciation is sum total of all previous year deprecation.
Book value is calculated by subracting previous year bookvalue with the current year depreciation.
b. Highest net income can be achieved by minimising the cost So, methods which provides for minimum depreciation in the first year should be chosen. straight line method provides for minimum depreciation. hence should be selected.
Depreciation Schedule (Straight Line method) Year Asset cost depreciation Expense ($) Accumulated Depreciation ($) Asset Book value ($) 2018 74700 13920 13920 60780 2019 13920 27840 46860 2020 13920 41760 32940 2021 13920 55680 19020 2022 13920 69600 5100 Depreciation under straight line method Cost of asset-salvage value/ life of asset 74700-5100/5 13920 Depreciation Schedule (Unit of profuction method) Year Asset cost depreciation Expense ($) Accumulated Depreciation ($) Asset Book value ($) 2018 74700 15000 15000 59700 2019 15000 30000 44700 2020 15000 45000 29700 2021 15000 60000 14700 2022 9600 69600 5100 Depreciation per unit Cost of asset-salvage value/ total units of production 74700-5100/92800 0.75 Depreciation per year Depreciation per unit * no of units in the year Depreciation Schedule (Double declining method) Year Asset cost depreciation Expense ($) Accumulated Depreciation ($) Asset Book value ($) 2018 74700 29880 29880 44820 2019 17928 47808 26892 2020 10757 58565 16135 2021 6454 65019 9681 2022 3872 68891 5809 Depreciation under Double Declining 2/estimated useful life* book value at the beginning of the year 2/5*74700 29880 * calculated for other years using the same formula Note Cost of assets includes all the necessary expenses incurred to bring the asset in workable conditionHence the cost of assets is 67000+3000+1200+3500= $74700
Accumulated depreciation is sum total of all previous year deprecation.
Book value is calculated by subracting previous year bookvalue with the current year depreciation.
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