Final answer:
The annual depreciation for the five-year life of the van can be calculated using three methods: straight-line depreciation, declining balance depreciation, and units of production depreciation.
Step-by-step explanation:
The annual depreciation for the five-year life of the van can be calculated using three methods: straight-line depreciation, declining balance depreciation, and units of production depreciation. Let's calculate each method:
Straight-line depreciation:
The formula for straight-line depreciation is (Initial Cost - Residual Value) / Useful Life. In this case, the initial cost is $50,000, the residual value is $5,000, and the useful life is 5 years. Plugging in these values, we get: (50000 - 5000) / 5 = $9,000. Therefore, the annual depreciation using the straight-line method is $9,000.
Declining balance depreciation:
The formula for declining balance depreciation is: (Initial Cost - Accumulated Depreciation) * Depreciation Rate. The depreciation rate is usually a fixed percentage. Let's assume it's 20%. The accumulated depreciation starts at zero. Plugging in the values, we get (50000 - 0) * 0.20 = $10,000. Therefore, the annual depreciation using the declining balance method is $10,000.
Units of production depreciation:
The formula for units of production depreciation is: (Initial Cost - Residual Value) / Total miles expected to be driven. In this case, the initial cost is $50,000, the residual value is $5,000, and the total miles expected to be driven is 115,000 miles. Plugging in these values, we get: (50000 - 5000) / 115000 = $0.39 (rounded to cents). Therefore, the annual depreciation using units of production method is $0.39 multiplied by the actual number of miles driven each year.