Given the following cost information about a fixed asset, calculate depreciation expense for its second year of operation assuming a) straight-line depreciation, b) double-declining balance, and c) units of production. The cost of a truck purchased on January 1 is $30,000. It has a useful life of 5 years or 75,000 miles. At the time of the purchase of the asset, it had an estimated salvage value of $3,000 at the end of its useful life. It is driven 7,500 miles in its first year of operation and 16,750 miles in its second year of operation. Show the presentation of the fixed assets section of the balance sheet at the end of the second year for each of the above situations (i.e., straight-line depreciation, double-declining balance, and units of production). How much is the book value of this asset at the end of that second year under each of those depreciation methods? Solution: Asset book value Straight line Double-declining balance Units of production Vehicle Less accumulated depreciation Vehicle book value
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.
Given the following cost information about a fixed asset, calculate
The cost of a truck purchased on January 1 is $30,000. It has a useful life of 5 years or 75,000 miles. At the time of the purchase of the asset, it had an estimated salvage value of $3,000 at the end of its useful life. It is driven 7,500 miles in its first year of operation and 16,750 miles in its second year of operation.
Show the presentation of the fixed assets section of the
Solution:
|
Asset book value |
Straight line |
Double-declining balance |
Units of production |
|
Vehicle |
|
|
|
|
Less |
|
|
|
|
Vehicle book value |
|
|
|
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