Computing first-year depreciation and book value On January 1, 2018, Air Canadians purchased a used airplane for $37,000,000. Canadians expects the plane to remain useful for five years (4,000,000 miles) and to have a residual value of $5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year. Requirements Compute Air Canadian’s first-year depreciation expense on the plane using the following methods: a. Straight-line b. Units-of-production c. Double-declining-balance Show the airplane’s book value at the end of the first year for all three methods.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Computing first-year
On January 1, 2018, Air Canadians purchased a used airplane for $37,000,000. Canadians expects the plane to remain useful for five years (4,000,000 miles) and to have a residual value of $5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year.
Requirements
Compute Air Canadian’s first-year depreciation expense on the plane using the following methods:
a. Straight-line
b. Units-of-production
c. Double-declining-balance
Show the airplane’s book value at the end of the first year for all three methods.
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