A corporation will buy a set of three heavy duty trucks for 100,000 dollars. The
ID: 1209609 • Letter: A
Question
A corporation will buy a set of three heavy duty trucks for 100,000 dollars. The company will use the trucks for 10 years and expect the set of three to have a salvage value of 9000 dollars. Using the DDB method of depreciation compute the Book Value and yearly depreciation for the set of trucks for the years 3 and 8. Using the mandate MACRS tables compute the Book Value and yearly depreciation for the set of trucks for the years 2 and 9. Using the DB method such that the book value equals the salvage value after 10 years calculate the Book value and yearly depreciation for the years 4 and 7. Show all intermediate steps including as appropriate: rate used, property class and any other significant intermediate results.Explanation / Answer
a) Under the double declining balance method, double means twice or 200% of the straight line depreciation rate. Declining balance refers to the asset's book value or carrying value at the beginning of the accounting period. Book value is an asset's cost minus its accumulated depreciation. In this case the book value is $91000 (100000-9000) and yearly depreciation rate will be 10% as per Straight Line method. So, under DDB, it will be 20%.
Year
Book Value
Depreciation(20%)
Remaining Book Value
1
91,000
18,200
72,800
2
72,800
14,560
58,240
3
58,240
11,648
46,592
4
46,592
9,318
37,274
5
37,274
7,455
29,819
6
29,819
5,964
23,855
7
23,855
4,771
19,084
8
19,084
3,817
15,267
9
15,267
3,053
12,214
10
12,214
2,443
9,771
b).
Truck Depreciation Schedule
Bottom of Form
#
Year
Basis
%
Depreciation
Accumulated
Ending
M
Expense
Depreciation
Book Value
1
2016
$91,000
10.00%
$9,100
$9,100
$81,900
DB
2
2017
$91,000
18.00%
$16,380
$25,480
$65,520
DB
3
2018
$91,000
14.40%
$13,104
$38,584
$52,416
DB
4
2019
$91,000
11.52%
$10,483
$49,067
$41,933
DB
5
2020
$91,000
9.22%
$8,387
$57,454
$33,546
DB
6
2021
$91,000
7.37%
$6,709
$64,163
$26,837
DB
7
2022
$91,000
6.55%
$5,964
$70,127
$20,873
SL
8
2023
$91,000
6.55%
$5,964
$76,091
$14,909
SL
9
2024
$91,000
6.55%
$5,964
$82,054
$8,946
SL
10
2025
$91,000
6.55%
$5,964
$88,018
$2,982
SL
11
2026
$91,000
3.28%
$2,982
$91,000
$0
SL
Bottom of Form
c). The depreciation for year 4 & 7 is given in above tables.
Year
Book Value
Depreciation(20%)
Remaining Book Value
1
91,000
18,200
72,800
2
72,800
14,560
58,240
3
58,240
11,648
46,592
4
46,592
9,318
37,274
5
37,274
7,455
29,819
6
29,819
5,964
23,855
7
23,855
4,771
19,084
8
19,084
3,817
15,267
9
15,267
3,053
12,214
10
12,214
2,443
9,771
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