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Penny Corp. purchased a new car on March 1, 2016 for $25,000. The estimated useful life of

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Penny Corp. purchased a new car on March 1, 2016 for $25,000. The estimated useful life of the car was five years or 500,000 kms. Estimated residual value was $5,000. The car was driven 120,000 kms. in 2016 and 150,000 kms. in 2017.
Required: Calculate the depreciation for 2016 and 2017 using
1. The straight-line method
2. Usage method (kms.)
3. Double-declining balance method.
Assume where applicable that the company uses the ½ year rule to calculate depreciation expense in the year of acquisition and disposal.
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1 Straightline method 25000 5000 4000 per year 5 years 2016 depreciation 4000 2000 2017 depreci...View the full answer


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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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