Question

On January 1, 2021, the Excel Delivery Company purchased a delivery van for $48,000. At the end of its five-year service life, it is estimated that the van will be worth $3,000. During the five-year period, the company expects to drive the van 175,000 miles.

Required:
Calculate annual depreciation for the five-year life of the van using double declining balance of the following methods.

Answer 1

Year 1 = $19200

Year 2 = $11520

Year 3 = $6912

Year 4 = $4147.2

Year 5 = $2488.32

Step-by-step explanation:

The depreciation is an expense that is charged to allocate the cost of a non current asset over the estimated useful life of the asset. The double declining balance method is an accelerated method of depreciation that charges higher depreciation in the early years and lower depreciation in the later years of the asset's life.

The formula for double declining balance method is,

Double declining balance = 2 * [ (Cost - Accumulated depreciation) / estimated useful life of the asset ]

Depreciation under double declining balance method

Year 1 = 2 * [ (48000 - 0) / 5 ] = $19200

Accumulated depreciation = $19200

Year 2 = 2 * [ (48000 - 19200) / 5 ] = $11520

Accumulated depreciation = 19200 + 11520 = $30720

Year 3 = 2 * [ (48000 - 30720 ) / 5 ] = $6912

Accumulated depreciation = 30720 + 6912 = $37632

Year 4 = 2 * [ (48000 - 37632) / 5 ] = $4147.2

Accumulated depreciation = 37632 + 4147.2 = $41779.2

Year 5 = 2 * [ (48000 - 41779.2) / 5 ] = $2488.32

Accumulated depreciation = 41779.2 + 2488.32 = $44267.52