Depreciation Expense

E7-33B

Cost: 19,200

Useful Life: 4 years/ 30,000 miles

Residual Value: 2,400

Straight Line Method |

Straight Line Depreciation Per Year: | =(Cost-Residual Value)/Useful life, in years | | |

| =(19,200-2400)/4 = 4,200 | | | |

| | | | |

Date | Depreciation Expense | Accumulated Depreciation | Carrying Amount | |

20X6 | 4,200 | 4,200 | 15,000 | |

20X7 | 4,200 | 8,400 | 10,800 | |

20X8 | 4,200 | 12,600 | 6,600 | |

20X9 | 4,200 | 16,800 | 2,400 | |

| | | | |

Units-of-Production Method |

Units-of-Production depreciation per unit of output: | =(Cost-Residual Value)/ Useful life, in units | | |

| =(19,200-2,400)/30,000=0.56 | | | |

Depreciation expense= Depreciation per unit* Number of units | | | | |

Date | Number of Units | Depreciation Expense | Accumulated Depreciation | Carrying Amount |

20X6 | 8,000 | 4,480 | 4,480 | 14,720 |

20X7 | 8,500 | 4,760 | 9,240 | 9,960 |

20X8 | 5,500 | 3,080 | 12,320 | 6,880 |

20X9 | 8,000 | 4,480 | 16,800 | 2,400 |

| | | | |

Double-Declining Balance Method |

| | | | |

DDB depreciation rate per year | (1/useful life, in years)*2 | | | |

| =(1/4)*2= 0.5 | | | |

| | | | |

Date | Depreciation Expense | Accumulated Depreciation | Carrying Amount | |

20X6 | 9600 | 9600 | 9,600 | |

20X7 | 4800 | 14400 | 4,800 | |

20X8 | 2400 | 16800 | 2,400 | |

20X9 | 0* | 16800 | 2,400 | |

| | | | |

*Last years’ depreciation is zero as the asset is not depreciated below residual value of €2,400 | | | | |

Comparison |

Date | Straight Line | Units of Production | Double Declining | |

20X6 | 4,200 | 4,480 | 9,600 | |

20X7 | 4,200 | 4,760 | 4,800 | |

20X8 | 4,200 | 3,080 | 2,400 | |

20X9 | 4,200 | 4,480 | - | |

| 16,800 | 16,800 | 16,800 | |

The units-of production method best tracks the wear and tear on the van...