A small truck is purchased for $52,000. It is expected to be of use to the compa

Question

A small truck is purchased for $52,000. It is expected to be of use to the company for 6 years, after which it will be sold for $9,000. Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset’s life, for the following methods :

1) Use straight-line depreciation

2) Use double declining balance depreciation [Note! Manually calculated values of dt (Depreciation Deduction) would normally be adjusted such that Bt (Unrecovered Investment) does not go below the salvage value. Ignore these adjustments in this case.]

3) Use sum-of-years’-digits depreciation

Explanation / Answer

Answer

Cost

$52000

(-) Salvage value

$9000

Depreciable base

$43000

Life (in years)

6

SLM Annual Depreciation [43000/6]

7166

SLM Rate [7166/43000]

16.67%

Double declining rate [16.67% x2]

33.33%

Sum of Years [1+2+3+4+5+6]

21

Double Declining Balance method

Sum of Year Digits method

Year

Straight Line Depreciation

opening balance

Depreciation expense at 33.33%

Closing balance

Calculation

Depreciation expense

1

7167

52000

17332

34668

43000 x 6/21

12286

2

7167

34668

11555

23113

43000 x 5/21

10238

3

7167

23113

7704

15410

43000 x 4/21

8190

4

7167

15410

5136

10274

43000 x 3/21

6143

5

7167

10274

1273

9000

43000 x 2/21

4095

6

7167

9000

9000

43000 x 1/21

2048

Total Depreciation expense

$43000

$43000

$43000

Cost

$52000

(-) Salvage value

$9000

Depreciable base

$43000

Life (in years)

6

SLM Annual Depreciation [43000/6]

7166

SLM Rate [7166/43000]

16.67%

Double declining rate [16.67% x2]

33.33%

Sum of Years [1+2+3+4+5+6]

21

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