Hi I feel confused about this question, so can you give me a detailed explanation and answer it?
Archie Stanton starts a trucking business on January 15', 2020. He decides to rent his premises in which to conduct his business and house his trucks. On January 1St he purchases 5 trucks each costing $255,000. Archie believes that the trucks have a useful life of 4 years. He also intends to offer delivery services over very long distances with heavily loaded trucks such that at the end of the 4 years they will each have a residual value of only $6,528. Archie has asked you to advise him on which depreciation method he should adopt for the preparation of his financial statements. He wants to consider the use of either straight-line depreciation or reducing balance depreciation since keeping track of the number of kilometres travelled by each truck will be too onerous for the use of the units of production method. You determine that the correct depreciation rate for the use of the reducing balance method is 60%. Archie has also decided to produce his nancial statements on December 315' each year. You come back to Archie with the following tables that show how the Depreciation expense each year and the Carrying Value of the Trucks will vary based on the depreciation method chosen. Delivery Truck Details Cost Price of the trucks . ..... 5 trucks @ $255,000 each $1,275,000 Residual value of the trucks ...... 5 trucks @ $6,528 each $32,640 Depreciable Amount of the trucks ...... $1 242,360 Straight-line depreciation each year for 4 years $1,242,360/4 = $310,590 Reducing Balance depreciation rate ...... 60% Straight-Line Depreciation Allocation of the $1,242,360 Depreciable Amount 1st Jan 2020 31st Dec 2020 31st Dec 2021 31st Dec 2022 31st Dec 2023 Cost of Trucks ...... . .. . .... $1,275,000 $1,275,000 $1,275,000 $1,275,000 $1,275,000 Accumulated Depreciation 0 $310.590 $621,180 $931,770 $1,242,360 Carrying Value .. .. . ... ..... $1.275.000 $964.410 $653.820 $343,230 $32,640 Annual Depreciation Expense $310.590 $310,590 $310,590 $310,590Reducing Balance Depreciation Allocation of the $1,242,360 Depreciable Amount 1st Jan 2020 31st Dec 2020 31st Dec 2021 31st Dec 2022 31st Dec 2023 Cost of Trucks ...... .. ...... $1,275,000 $1.275,000 $1 275,000 $1,275,000 $1.275,000 Accumulated Depreciation 0 $765.000 $1.071.000 $1,193,400 $1,242,360 Carrying Value ...... $1.275,000 $510.000 $204.000 $81,600 $32,640 Annual Depreciation Expense $765.000 $306.000 $122,400 $48,960Question 3 (continued) You advise Archie to adopt the straight-line method since you do expect that the trucks will deliver consistent and reliable service for the 4 years provided that they are regularly serviced and maintained. In your opinion, the reducing-balance method does not adequately reveal the usage of their service potential across the 4 years. Archie agrees with you and adopts the straight-line method for financial reporting purposes. Archie is now looking at his nancial statements for the year ended December 31\
