In question #2 the choices shown in blank 1 are the same as blank 2 Assume that

Question

In question #2 the choices shown in blank 1 are the same as blank 2

Assume that on September 30, 2011, Luxuryair, the national airline of Germany, purchased a Jumbo aircraft at a cost of 42,500,000 (is the symbol for the euro). Luxuryair expects the plane to remain useful for five years (5,000,000 miles) and to have a residual value of 4,250,000. Luxuryair will fly the plane 350,000 miles during the remainder of 2011. Compute Luxuryair's depreciation on the plane for the year ended December 31, 2011, using the following methods: a. Straight-line b. Units-of-production c. Double-declining-balance Which method would produce the highest net income for 2011? Which method produces the lowest net income?

Explanation / Answer

1 a) Straight line Cost 42500000 Residual value 4250000 38250000 Useful life 5 years 7650000 Depriciation pa = ( 42500000 - 4250000)/5                                  = 7650000 1912500 Depriciation from 1st October to 31st December 2011 ( 3 months) = 7650000 / 12*3             = 1912500 b) Units of production Cost 42500000 Total miles 5000000 2975000 Miles flown in 2011 350000 Depriciation in 2011 = 42500000 * 350000/5000000                                           = 2975000 c) Double declining balance SLM depriciation = 42500000 /5 = 8500000 SLM Rate = 8500000 / 42500000 * 100 = 20% Double declining rate = 2 * 20% = 40% Depriciation pa = 42500000 * 40%                                 = 17000000 Depriciation from 1st October to 31st December 2011 ( 3 months) = 17000000 / 12*3     = 4250000 2) Straight line depriciation produces the highest net income Double declining balance produces the lowest net income

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.