GUDS13-Greater Understanding DeviceS When complete, fold paper and write name, G

Question

GUDS13-Greater Understanding DeviceS When complete, fold paper and write name, GUDS13, and section on top right corner. Hand in before leaving class. Speedy Delivery Co purchases a delivery van on Jan. 1st for $58,000. Speedy estimates that at the end of its 4-yr service life, the van will be worth $4,000 During the 4-yr period, the company expects to drive the van 120,000 miles. The first year, Speedy drove the van 24,000 miles. Calculate annual depreciation for the 4-yr life using: 1. Straight-line method 3. Activity based method

Explanation / Answer

Depreciation Using Straight Line Method

Annual Depreciation = ( Cost of the Van – Salvage Value ) / Usefull Life

                                    = ( $58,000 - $4,000 ) / 4 Years

                                    = $13,500/ Year

Depreciation Year 1 = $13,500

Depreciation Year 2 = $13,500

Depreciation Year 3 = $13,500

Depreciation Year 4 = $13,500

2.Depreciation using Activity Based Method

Depreciation = [(Cost of Van – Salvage Value) / Estimated Total Miles]   

                           x Actual Miles Drove

Depreciation   = [ ($58,000 - $4,000) / 1,20,000 Miles ] x 24,000 Miles

                   = $10,800

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