Exercise 1. Calculating the Four Depreciation Methods: Depreciation Data: . A truck (MACHINERY AND EQUIPMENT) is acquired at 1/1 Year 7 for a cost of $68,000. a . Estimated useful life at 1/1 Year 7 is 5 years. . At 1/1 Year 7 the residual value is estimated to be $8,000 at the end of the 5-year useful life, i.e., 12/31 Year 12. The abbreviation for residual value is RV." . Estimated total miles (units) over the truck's life is 200,000 miles. Actual usage each year over the truck's life (which will not be known until after each year has passed): Year 1: Year 2: Year 3: Year 4: Year 5: 50,000 miles 44,000 miles 36,000 miles 40,000 miles 30,000 miles 200,000 miles Total Below, the amount of DEPRECIATION EXPENSE and related amounts are calculated for each of the four depreciation methods for each year of the truck's useful life. a. Straight-Line Method (SL): ( Cost Residual Value ) - Life = DEPRECIATION EXPENSE ) : b. Units-of-Production Method (UOP): DEPRECIATION RATE = ( Cost Residual Value ) - Total Units (Miles) ) - Depreciation Expense for Each Year: Actual Miles Per Year Depreci- ation Rate DEPR. EXPENSE ACCUM. DEPR. Book Value 68,000 $ Year Cost 1 2 3 4 5 = miles X $ miles X $ miles X $ miles X $ miles X $ $ $ $ $ $ $ $ $ $ A A A A A = = * Total = 60,000* *The total depreciation must equal the cost - residual value, $60,000. c. Double-Declining-Balance Method (DDB): Double-Declining Rate (100% + useful life) X 2 = (100% = ) X2 = %. Double- Declining Rate Declining Book Value DEPR. EXPENSE ACCUM. DEPR. Book Value 68,000 Year Cost 1 2 3 **4 5 $ $ $ S $ $ $ = % $ % $ % $ % $ $ $ $ $ $ $ $ $ $ $ Plug Amount Total = 60,000* *The total depreciation must equal the cost - residual value, $60,000. Under the double-declining balance method a plug amount is often needed for the last year since this process is subject to rounding. ** Round depreciation expense to the nearest whole dollar. d. Sum-Of-The-Years'-Digits Method (SYD): N = useful life of the asset = 5 years. Cost - Residual Value = $ - $ $ Denominator = N ( N + 1) 1 2 + 1) / 2 = Numerator/ Denominator DEPR. EXPENSE ACCUM. DEPR. Cost-RV Book Value 68,000 = Year Cost 1 2 3 4 5 $ $ $ $ $ $ = $ $ $ $ $ 60,000* $ $ $ $ $ $ $ $ $ $ $ Total * The total depreciation must equal the cost - residual value, $60,000