# Depreciation Calculation Methods. Almost done, need part B

Almost done with this particular problem, just need help with part B:

Depreciation calculation methods. Hill Co. Acquired a new delivery truck at the
Beginning of its current fiscal year. The following information is available

cost \$100,000
estimated useful life 5 years
estimated salvage value \$5,000

Required:
A. Calculate depreciation expense for the first 4 years of the trucks life using:
1. Straight-line depreciation.
2. Sum-of-the-years-digits depreciation.
3. Double-declining-balance depreciation.

B. Calculate the trucks net book value at the end of its third year of use under
Each depreciation method.

C. Assume that Hill Co. Had no more use for the truck after the end of the
Third year and that at the beginning of the fourth year it had an offer from a
Buyer who was willing to pay \$6,200 for the truck. Should the depreciation
Method used by Hill Co. Affect the decision to sell the truck?

1. Straight-line depreciation method:

100,000 - 50000
4
23,750 (depreciation expense for first four years)

2. Sum-of-the-years' digits depreciation method:

4 years useful life: 4+3+2+1 = 10
4/10 = 40%, 3/10 = 30%, 2/10 = 20%, 1/10 = 10%
100,000 - 5,000 = 95,000 (depreciable base)
Year 1 @ 40% = \$38,000
Year 2 @ 30% = 28,500
Year 3 @ 20% = \$19,000
Year 4 @ 10% = \$9,500

3. Double-declining-balance depreciation method:

Straight line depreciation charge: 23,750
Total Depreciation amount: 95,000
Divide 23,750 by 95,000
Striaght line depreciation expense is 25% of the total depreciation amount.
Figure is doubled to 50%
Year 1: 95,000 * 50% = 47,500
Year 2: 47,500 8 50% = 23,750
Year 3: 23,750 * 50% = 11,875 (drops below the amount that would be charged using straight line method)
Year 4: 11,875 * 50% = 5,937.50 (drops below the amount that would be charged using straight line method)

Comparison of all the methods:
Method Year 1 Year 2 Year 3 Year 4
Straight Line \$23,750 23,750 \$23,750 \$23,750
Sum of Years' 38,000 28,500 \$19,000 \$9,500
Double-Decl Balance \$47,500 23,750 \$0 \$0

B.Net Book Value Year Open BV Deprec. Ending BV
Straight Line Year 1 100,000
Sum of Years' Year 2 100,000
Double Declining Balance Year 3 100,000

C.
Depreciation method not relevant to the decision to sell truck in scenario. Truck should be sold if there
Is no more use for it. Depreciation method will not affect the cash flow from the sale of the
Truck. The accounting gain or loss may be different due to depreciation methods, but sale price will not be affected.
Then again, When you look at the comparison of the methods above, Hill Co, would probably fair better
With selling the truck at one of the amounts above. \$23,750 at the end of year three would certaintly be a better
Bargain than selling it for \$6,200, but that decision should be based upon whether or not it's value to the company
Is even worth holding on to it and selling it at a later date.

 rehmanvohra Posts: 610, Reputation: 96 Senior Member #2 Aug 10, 2009, 01:59 AM
1. Straight Line Method:
100,000 - 5,000 = 95,000/5 = 19,000 per year
2. SYD Method:
Sum of digits 1+2+3+4+5= 15
Year 1 5/15 x 95,000 = 31,667
Year 2 4/15 x 95,000 = 25,333
Year 3 3/15 x 95,000 = 19,000
Year 4 2/15 x 95,000 = 12,667
Year 5 1/15 x 95,000 = 6,333

3 Double declining method
Use 40% rate instead of 50% because the life is 5 years not 4 as you have assumed

Quote:
 b. Calculate the truck’s net book value at the end of its third year of use under each depreciation method.
1. SLM 100,000 - (19,000 x 3) =43,000
2 SYD 100,000 - (31,667 + 23,333 + 19,000) = 24,000
3 DDm 100,000 - (38,000 + 22,800 + 13,680) = 25,520

If the truck is sold in the beginning of the 4th year for 6,200 it will incur loss . Whatever you stated is correct about the use of the method.
 morgaine300 Posts: 6,564, Reputation: 1474 Uber Member #3 Aug 10, 2009, 03:04 AM
Ladyblaque, you had the straight-line correct the first time you did this, which I believe I told you. Don't mess with a good thing. :-)

And as has been pointed out, the life is 5 years, not 4. You've changed it to 4 because the problem is asking for how much has accumulated for the first 4 years - but that 5th year doesn't just disappear. The problem can ask for only the 1st year, or 2 years, or however many they choose, but that won't change that the life of the asset is in total 5 years.

However, I would like to add that even though you used 4 years, this is much closer to the correct concept and you've come a ways since you posted this before. :-)
 ladyblaque1979 Posts: 14, Reputation: 1 New Member #4 Aug 10, 2009, 08:43 AM
Why, thank you!
 grandmaof4 Posts: 1, Reputation: 10 Junior Member #5 Nov 1, 2011, 07:49 PM
A truck for \$36,000 with a estimated life of 5 years and a residual value of the truck of \$5,000 Assume a straight line method of depreciation what would be the book value at tha end of year
 pready Posts: 2,662, Reputation: 887 Ultra Member #6 Nov 2, 2011, 06:37 AM
first you have to calculate the dedreciation:
(Cost - Salvage value) / useful life = Depreciation per year

Second, to calculate Book value at end of year:
Book value at beginning of year (Cost in beginning of year 1) - depreciaiton (calculated above) = Remaining Book Value (Book Value at end of year)

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