In the recent years, Riverbed Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each bus, and various methods have been used. Information concerning the buses is summarized in the table below. Bus Acquired Cost Salvage Value Useful Life in Years Depreciation Method 1 1/1/20 96,200 5,000 4 Straight-Line 2 1/1/20 121,000 10,000 4 Declining-Balance 3 1/1/21 95,100 9,000 4 Units-of Activity For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 123,000. Actual miles of use in the first 3 years were 2021, 28,00; 2022, 32,000; and 2023, 30,500. For bus #3, calculate depreciation expense per mile under the units-of-activity method. (95,100-9,000) / 123,000 = 0.7 per mile Compute the amount of accumulated depreciation on each bus at December 31, 2022. Accumulated Depreciation Bus 1 Bus 2 Bus 3 If Bus 2 was purchased on April 1 instead of January 1, what is the depreciation expense for this bus in (1) 2020 and (2) 2021? (1) 2020 (2) 2021 Depreciation Expenses
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.
In the recent years, Riverbed Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant was in charge of selecting the
|
Bus |
Acquired |
Cost |
Salvage Value |
Useful Life in Years |
Depreciation Method |
|
1 |
1/1/20 |
96,200 |
5,000 |
4 |
Straight-Line |
|
2 |
1/1/20 |
121,000 |
10,000 |
4 |
Declining-Balance |
|
3 |
1/1/21 |
95,100 |
9,000 |
4 |
Units-of Activity |
For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 123,000. Actual miles of use in the first 3 years were 2021, 28,00; 2022, 32,000; and 2023, 30,500.
For bus #3, calculate depreciation expense per mile under the units-of-activity method.
(95,100-9,000) / 123,000 = 0.7 per mile
Compute the amount of
|
|
Accumulated Depreciation |
|
Bus 1 |
|
|
Bus 2 |
|
|
Bus 3 |
|
If Bus 2 was purchased on April 1 instead of January 1, what is the depreciation expense for this bus in (1) 2020 and (2) 2021?
|
|
(1) 2020 |
(2) 2021 |
|
Depreciation Expenses |
|
|
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