South Airlines purchased a 747 aircraft on January 1, 2013, at a cost of $350,00
ID: 2458777 • Letter: S
Question
South Airlines purchased a 747 aircraft on January 1, 2013, at a cost of $350,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $50,000. On January 1, 2016 the airline revises the total estimated useful life to 12 years with a revised salvage value of $35,000. Instructions Compute the depreciation and book value at December 31, 2015 using the straight-line method and the double-declining-balance method. Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2016.Explanation / Answer
Given Cost of an aircraft = $350000
Estimated useful life of the aircraft as on january 1 2013 = 20 years
Estimated salvage value = $50000
Depreciation as at 31 december 2015 - Straight line method = [(Cost - Salvage value)/20] * 3 years
=[(350000-50000)/20] * 3 years
= $45000
Book value = $350000-45000
= $305000
Depreciation as at 31 december 2015 - Double declining balance method =
Years Book value Depreciation
1 350000 2*SL Rate* Begining Book value = 2*0.05*350000 = $35000
2 315000 2*0.05*315000 = $31500
3 283500 2*0.05*283500 = $28350
Depreciation as at 31 december 2015 = $94850 ($35000+$31500+$28350)
Book value as at 31 december 2015 = $255150 ($350000-$94850)
Depreciation as at 31 december 2016 - Straight line method = [(Cost - Salvage value)/12]
= [($350000 - 35000)/12]
= $26250
Depreciation of earlier years after revision in estimated useful life = $78750 - $45000 (Depreciation to be charged - Depreciation charged)
= $33750
Total depreciation to be charged for the year ended 31 december 2016 = $60000
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