A car rental agency has bought three economy-size, four medium-size, and two ful

Question

A car rental agency has bought three economy-size, four medium-size, and two full-size cars; see Table 11-25. Using composite depreciation, compute the annual straight-line depreciation charge and the (composite) life for this collection of cars. Ans. $12100. 324/121 = 2.678 years 11.11 Table 11-25 Economy Medium Full Initial Cost (each) Service Life Salvage Value (each) $6200 2 years S3600 $8200 3 years 3 years $4900 $13 000 $7300 11.12 Rework Problem 11.11 using group depreciation. Ans, $12150, 8/3= 2.667 years

Explanation / Answer

11.11 - Composite depreciation

Composite life of the asset group = Total depreciation cost / annual depreciation
=  32400 / 12100 = 2.678 years

And as per above tale, annual straight line depreciation charge = $ 12100

11.12 - Group depreciation:-

Total depreciation cost as per above table = $ 32400

Average service life of 3 categories = (2 + 3 + 3) / 3 = 2.667

Annual straight line depreciation = 32400 / 2.667 = $ 12150

Cars Asset cost (a) salvage value(b) Depreciation cost (a-b) No. of cars Total depreciation cost(c) Service life(d) Annual depreciation(c/d) Economy 6200 3600 2600 3 7800 2 3900 Medium 8200 4900 3300 4 13200 3 4400 Full 13000 7300 5700 2 11400 3 3800 Total 32400 12100

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