Question

Speedy Delivery Company purchases a delivery van for $36,000. Speedy estimates that at the end of its four-year service life, the van will be worth $6,400. During the four-year period, the company expects to drive the van 148,000 miles. Actual miles driven each year were 40,000 miles in year 1 and 46,000 miles in year 2.
Required:
Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)
1. Straight line
2. Double-declining-balance

Answer 1

Answer: Straight line method is $7,400 per year.

Double declining balance method is $ 14,800 per year.

Explanation:

Depreciation on a straight line basis is calculated thus:

Cost - Residual value/ useful life

= (36,000 - 6,400)/ 4

= 7,400 per year

Depreciation on double declining method is calculated thus:

100% / useful life

100%/4 = 25

25%*2= 50%

Cost - residual value * 50%

36,000 - 6,400* 50%

29,600* 50%

=$14,800 for the first and second year