On January 1, 2013, the Excel Delivery Company purchased a delivery van for $52,

Question

On January 1, 2013, the Excel Delivery Company purchased a delivery van for $52,000. At the end of its five-year service life, it is estimated that the van will be worth $4,000. During the five-year period, the company expects to drive the van 150,000 miles.

   

Calculate annual depreciation for the five-year life of the van using each of the following methods. (Do not round intermediate calculations.)

DOUBLE DECLINING BALANCE

2013 ?

2014?

2015?

2016?

2017?

UNITS OF PRODUCTION USING MILES AS A MEASURE OF OUTPUTAND THE FOLLOWING ACTUAL MILEAGE

YEAR                    MILEAGE               DEPRECIATION

2013                     31,000                             ?

2014                     33,000                               ?

2015                      44,000                            ?

2016                       29,000                          ?

2017                       30,000                           ?

2013

      

Required:

Calculate annual depreciation for the five-year life of the van using each of the following methods. (Do not round intermediate calculations.)

DOUBLE DECLINING BALANCE

2013 ?

2014?

2015?

2016?

2017?

UNITS OF PRODUCTION USING MILES AS A MEASURE OF OUTPUTAND THE FOLLOWING ACTUAL MILEAGE

YEAR                    MILEAGE               DEPRECIATION

2013                     31,000                             ?

2014                     33,000                               ?

2015                      44,000                            ?

2016                       29,000                          ?

2017                       30,000                           ?

2013

Explanation / Answer

The double declining balance formula is:

Double-declining balance (ceases when the book value = the estimated salvage value)

2 × Straight-line depreciation rate × Book value at the beginning of the year

A variation on this method is the 150% declining balance method, which substitutes 1.5 for the 2.0 figure used in the calculation. The 150% method does not result in as rapid a rate of depreciation at the double declining method.

Depreciation as per mileage

Year Net book value, beginning of year Double-declining bal­ance depreciation computed as 2 × SL rate × beginning Book value Net book value, end of year 1 $52,000 $20,800 $60,000 2 31,200 $12,480 36,000 3 18,720 $7,488 21,600 4 11,232 $4,493 12,960 5 6,739 $2,739 $4000 salvage value      Total $48,000

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