A tractor for over-the-road hauling is purchased for $75,000.00. It is expected

Question

A tractor for over-the-road hauling is purchased for $75,000.00. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,200.00. Calculate the depreciation deduction and the unrecovered investment during each year of the tractors life.

a. Use straight-line depreciation. Provide depreciation and book value for year 6.

e. Use sum-of-years-digit depreciation. Provide depreciation and book value for year 6.

a. Use straight-line depreciation. Provide depreciation and book value for year 6.

b. Use declining-balance depreciation, with a rate that ensures the book value equals the salvage value. Provide depreciation and book value for year 6.

c. Use double declining balance depreciation. Provide depreciation and book value for year 6.

d. Use double declining balance, switching to straight-line depreciation. Provide depreciation and book value for year 6.

e. Use sum-of-years-digit depreciation. Provide depreciation and book value for year 6.

Explanation / Answer

Ans a SLM Depreciation per year (75000-3200)/6 11967 Year Beg Book value B Dep D Acc Dep Ending Book value B-D 1 75000 11967 11967 63033 2 63033 11967 23933 51067 3 51067 11967 35900 39100 4 39100 11967 47867 27133 5 27133 11967 59833 15167 6 15167 11967 71800 3200 Depreciation for year 6 11967 Book value for year 6 3200 ans b DDB rate 1/6*200% 33.33 % Year Beg Book value B Dep rate Dep D Acc Dep Ending Book value B-D 1 75000 33.33 25000 25000 50000 2 50000 33.33 16667 41667 33333 3 33333 33.33 11111 52778 22222 4 22222 33.33 7407 60185 14815 5 14815 33.33 4938 65123 9877 6 9877 33.33 3292 68416 6584 So for year 6 Dep will be equal to 9877-3200= 6677 as this makes book value equal to salvage value Depreciation for year 6 6677 Book value for year 6 3200 ans c DDB rate 1/6*200% 33.33 % Year Beg Book value B Dep rate Dep D Acc Dep Ending Book value B-D 1 75000 33.33 25000 25000 50000 2 50000 33.33 16667 41667 33333 3 33333 33.33 11111 52778 22222 4 22222 33.33 7407 60185 14815 5 14815 33.33 4938 65123 9877 6 9877 33.33 3292 68416 6584 Depreciation for year 6 3292 Book value for year 6 6584 ans d DDB rate 1/6*200% 33.33 % Year Beg Book value B Dep rate Dep D Acc Dep Ending Book value B-D 1 75000 33.33 25000 25000 50000 2 50000 33.33 16667 41667 33333 3 33333 33.33 11111 52778 22222 4 22222 33.33 7407 60185 14815 5 14815 33.33 4938 65123 9877 6 9877 33.33 3292 68416 6584 In year 3 it will be switched to SLM method as deprecition under SLM is more the DDB So dep would be (33333-3200)/4 7533 Depreciation for year 6 7533 Book value for year 6 3200 ans e Sum of year digit method 6+5+4+3+2+1 21 Year Dep base (75000-3200) Remaining ;ife Dep factor Dep D Acc Dep Ending Book value B-D 1 71800 6.00 6/21 20514 20514 51286 2 71800 5.00 5/21 17095 37610 34190 3 71800 4.00 4/21 13676 51286 20514 4 71800 3.00 3/21 10257 61543 10257 5 71800 2.00 2/21 6838 68381 3419 6 71800 1.00 1/21 3419 71800 3200 Depreciation for year 6 3419 Book value for year 6 3200

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