Speedy Delivery Company purchases a delivery van for $30,400. Speedy estimates t

Question

Speedy Delivery Company purchases a delivery van for $30,400. Speedy estimates that at the end of its four-year service life, the van will be worth $5,200. During the four-year period, the company expects to drive the van 157,500 miles. Actual miles driven each year were 42,000 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 Annual Depreciation Year 2 2. Double-declining-balance Annual Depreciation Year 3 Activity-based. Year

Explanation / Answer

Answer of part 1:
Depreciation = (purchase price - residual value)/no. Of life year
Depreciation= ($30,400 - $5,200)/4
Depreciation = $6,300

Each year depreciation will be same $6,300, as we are using straight line method
Year 1 =$6,300
Year 2 = $6,300

Answer of part 2:
Annual straight line depreciation percentage = 100% / 4years
Annual straight line depreciation percentage = 25%
Annual double declining percentage = 25%*2
Annual double declining percentage = 50%

Year 1:
Depreciation = purchase price *50%
Depreciation = $30,400*50%
Depreciation= $15,200

Year 2:
Book value at the end of Year 1 = Purchase price - depreciation of year 1
Book value at the end of Year 1 = $30,400 - $15,200
Book value at the end of Year 1 = $15,200

Depreciation = $15,200*50%
Depreciation = $7,600

Answer of part 3:
Depreciable amount = purchase price - residual value
Depreciable amount = $30,400 - $5,200
Depreciable amount = $25,200

Depreciation per mile = Depreciable amount / total expected miles
Depreciation per mile =$25,200 / 157,500
Depreciation per mile =$0.16 per mile

Year 1:
Depreciation = miles in year 1 * depreciation per mile
Depreciation = 42,000 * $0.16
Depreciation = $6,720

Year 2:
Depreciation = miles in year 2 * depreciation per mile
Depreciation= 46,000*$0.16
Depreciation = $7,360

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