S7-8 (Learning Objectives 2, 3: Computing partial year depreciation; selecting t

Question

S7-8 (Learning Objectives 2, 3: Computing partial year depreciation; selecting the best depreciation method) Assume that an September 30, 20x6, LoganAir, the national airline of Switzerland, purchased an Airbus aircraft at a cosof 45,000,000. LoganAir expects the plane to remain useful for six years (4,500,000 miles) and to have a residual value of E5,400,000. LoganAir will fly the plane 410,000 miles during the remainder of 20X6. Compute LoganAir's depreciation on the plane for the year ended December 31, 20x6, using the following methods: a. Straight-line b. Units oproduction c. Double declining balance Which method would produce the highest net income for 20X6? Which method produces the lowest net income

Explanation / Answer

a) Straight line = (45000000-5400000/6) = 6600000*3/12 = 1650000

b) Unit of production = (45000000-5400000/4500000)*410000 = 3608000

c) Double decline balance = 45000000*1/3*3/12 = 3750000

Straight line method produce highest net income and double decline method produce lowest net income

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