[wanye]

Hi all,

got a few qtns that's cracking my brains:

q1) does the cost of an asset include down payment?

q2) For e.g.. On 1st Jan 2005, the cost of a van is $44,168. It has a useful life of 7 years and residual value of $7000. However on 1st January 2007, the total useful life of the van was revised to 5 years and the estimated residual value to be $3,000.

Determine the annual depreciation expense, accumulated depreciation and net book value of the van for the year 2005, 2006 and 2007 ?


Date Asset cost Depreciation Expense Accumulated Depreciation Asset Book Value
Start 44168 44,168.00
01-Jan-05 5,309.71 5,309.71 38,858.29
01-Jan-06 5,309.71 10,619.43 33,548.57
01-Jan-07 8849.52 19,468.95 24,699.05

Need you guys help to check whether my ans for dep. Expense, acc dep, and net book value shown in the table correct? If not what should be the right way of getting the ans?

[CaptainForest]

q1) does the cost of an asset include down payment??

Yes it does.

It includes all costs that you incurred. All cash payments for starters, plus installation, and a bunch of other costs.

q2) For eg. on 1st Jan 2005, the cost of a van is $44,168. It has a useful life of 7 years and residual value of $7000. However on 1st January 2007, the total useful life of the van was revised to 5 years and the estimated residual value to be $3,000.

Vehicle Purchases Jan 1/05
(44,168 – 7,000) / 7 = 5,309.71

Are you ignoring the half year rule?
If you are ignoring it, then….

Dec. 31/05
Amortization Expense 5,309.71
Accumulated Amortization 5,309.71

Dec. 31/06
Amortization Expense 5,309.71
Accumulated Amortization 10,619.42

Dec. 31/07
44,168 – 3,000 = Depreciable Amount of 41,168

Depreciable Amount of 41,168
Less: Accumulated Amortization 10,619.42
Net Depreciable Amount 30,548.58 / 3 = 10,182.86

Reason it is 3 years, and not 5. 5 total years – 2 years already gone (2005 and 2006).

Amortization Expense 10,182.86
Accumulated Amortization 20,802.28