Gray Corporation purchased a delivery van on March 1, 2020. Assume this van was the company's only capital asset and that the company uses the nearest whole month rule in the year of acquisition and disposal for straight- line and double-declining balance depreciation methods. The following information is available. Cost $30,000 Estimated useful life 5 years or 200,000 kms Residual value $12,000 The van was driven 20,000 km in 2020. Required: 1. Calculate the depreciation for 2020 under each of the following methods: a. Usage b. Straight-line c. Double-declining balance 2. Compare the depreciation expense and carrying amount for 2020 under each of these methods. 3. If one of management's objectives is to reduce income taxes which depreciation method should the company adopt and why?

Gray Corporation purchased a delivery van on March 1, 2020. Assume this van was the company's only capital asset and that the company uses the nearest whole month rule in the year of acquisition and disposal for straight- line and double-declining balance depreciation methods. The following information is available. Cost $30,000 Estimated useful life 5 years or 200,000 kms Residual value $12,000 The van was driven 20,000 km in 2020. Required: 1. Calculate the depreciation for 2020 under each of the following methods: a. Usage b. Straight-line c. Double-declining balance 2. Compare the depreciation expense and carrying amount for 2020 under each of these methods. 3. If one of management's objectives is to reduce income taxes which depreciation method should the company adopt and why?

Name: Gray Corporation purchased a delivery van on March 1, 2020. Assume th
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Description: Gray Corporation purchased a delivery van on March 1, 2020. Assume this van was the company's only capitalasset and that the company uses the nearest whole month rule in the year of acquisition and disposal for straight-line and double-declining bal

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

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Question

Gray Corporation purchased a delivery van on March 1, 2020. Assume this van was the company's only capital
asset and that the company uses the nearest whole month rule in the year of acquisition and disposal for straight-
line and double-declining balance depreciation methods. The following information is available.
Cost
$30,000
Estimated useful life
5 years or 200,000 kms
Residual value
$12,000
The van was driven 20,000 km in 2020.
Required:
1. Calculate the depreciation for 2020 under each of the following methods:
a.
Usage
b.
Straight-line
C.
Double-declining balance
2. Compare the depreciation expense and carrying amount for 2020 under each of these methods.
3. If one of management's objectives is to reduce income taxes which depreciation method should the
company adopt and why?

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