A company purchased a delivery truck on January 1, 2013, for $12,000. It is esti

Question

A company purchased a delivery truck on January 1, 2013, for $12,000.
It is estimated that the delivery truck will have a $3,000 salvage
value at the end of its 5-year useful life. If the company recorded
depreciation expense of $2,880 for the year 2014 on the delivery
truck, the depreciation method used by the company is
a. not determinable.
b. the straight-line method.
c. the 150% declining balance method.
d. the double-declining-balance method.

Explanation / Answer

Ans is a. not determinable Working : Cost of truck = $12000 Salvage value = $3000 SLN depn = (Cost - salvage)/No of years of life = 9000/5 = $1800......(1) 150% declining balance depreciation : Useful life = 5 years --> Straight line depreciation rate = 1/5 = 20% per year Depreciation rate for double declining balance method = 20% x 150% = 20% x 1.5 = 30% per year Depreciation for 2014 = $12,000 x 30% = $3,600...............(2) Double-declining-balance method: Useful life = 5 years --> Straight line depreciation rate = 1/5 = 20% per year Depreciation rate for double declining balance method = 20% x 200% = 20% x 2 = 40% per year Depreciation for 2014 = $12,000 x 40% = $4800..................(3)

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