South Airlines purchased a 747 aircraft on January 1, 2013, at a cost of $350,00

Question

South Airlines purchased a 747 aircraft on January 1, 2013, at a cost of $350,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $50,000. On January 1, 2016 the airline revises the total estimated useful life to 12 years with a revised salvage value of $35,000

Instructions

(a)    Compute the depreciation and book value at December 31, 2015 using the straight-line method and the double-declining-balance method.

(b)    Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2016.

Explanation / Answer

(a)

Depreciation for a period=2*straight line depreciation percent*[(book value at beginning of period-salvage value)-accumulated depreciation)].

(b)

Straight Line method Depreciation (Cost-Salvage value)/Useful Life Cost as on January 01, 2013 350000 (350000-50000)/20 Depreciation for the Year 2013 15,000                       15,000 Book Value as on December 31, 2013 3,35,000 Depreciation for the Year 2014 15,000 Book Value as on December 31, 2014 3,20,000 Depreciation for the Year 2015 15,000 Book Value as on December 31, 2015 3,05,000 Cost of Aircraft                   3,50,000 Thus Accumulated Depreciation Upto December 31, 2015 45,000 Book Value 3,05,000 Double Declining Method Depreciation Under Double Declining Method

Depreciation for a period=2*straight line depreciation percent*[(book value at beginning of period-salvage value)-accumulated depreciation)].

Year 2013 2*5%*(350000-50000)-0 30000 Cost of Aircraft                   3,50,000 Year 2014 2*5%*(350000-50000)-30000 Thus Accumulated Depreciation Upto December 31, 2015    81,300 27000 Book Value 2,68,700 Year 2015 2*5%*(350000-50000)-57000 24300

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