In recent years, Juresic Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant selected the depreciation method for each bus, and various methods were selected.
Bus Acquired Cost Salvage
Value Useful Life
in Years Depreciation Method
1 1/1/09 $96,000 $6,000 5 Straight-line
2 1/1/09 120,000 10,000 4 Declining-balance
3 1/1/10 80,000 8,000 5 Units-of-activity
For the declining-balance method, the company uses the double-declining rate. For the units-of activity method, total miles are expected to be 120,000. Actual miles of use in the first 3 years were: 2010, 24,000; 2011, 34,000; and 2012, 30,000.
To calculate the depreciation expense for each bus using the given methods, follow these steps:
1. Straight-line Method:
The formula to calculate straight-line depreciation is:
Depreciation Expense = (Acquired Cost - Salvage Value) / Useful Life
For Bus 1:
Depreciation Expense = ($96,000 - $6,000) / 5 = $18,000 per year
2. Declining-balance Method:
The formula to calculate declining-balance depreciation is:
Depreciation Expense = Book Value * Double-Declining Rate
The double-declining rate is calculated by dividing 100% by the Useful Life. In this case, it is 100% / 4 = 25%.
For Bus 2:
Year 1:
Depreciation Expense = $120,000 * 25% = $30,000
Year 2:
Book Value = Acquired Cost - Depreciation Expense Year 1 = $120,000 - $30,000 = $90,000
Depreciation Expense = $90,000 * 25% = $22,500
Year 3:
Book Value = Book Value Year 2 - Depreciation Expense Year 2 = $90,000 - $22,500 = $67,500
Depreciation Expense = $67,500 * 25% = $16,875
Year 4:
Book Value = Book Value Year 3 - Depreciation Expense Year 3 = $67,500 - $16,875 = $50,625
Depreciation Expense = $50,625 * 25% = $12,656.25
3. Units-of-activity Method:
The formula to calculate units-of-activity depreciation is:
Depreciation Expense per Unit of Activity = (Acquired Cost - Salvage Value) / Total Units of Activity
For Bus 3:
Depreciation Expense per Mile = ($80,000 - $8,000) / 120,000 = $0.60 per mile
Actual miles of use in the first 3 years were: 24,000 in 2010, 34,000 in 2011, and 30,000 in 2012.
Year 1:
Depreciation Expense = Actual Miles in Year 1 * Depreciation Expense per Mile = 24,000 * $0.60 = $14,400
Year 2:
Depreciation Expense = Actual Miles in Year 2 * Depreciation Expense per Mile = 34,000 * $0.60 = $20,400
Year 3:
Depreciation Expense = Actual Miles in Year 3 * Depreciation Expense per Mile = 30,000 * $0.60 = $18,000
So, the depreciation expenses for each bus using the different methods are as follows:
Bus 1 (Straight-line Method): $18,000 per year
Bus 2 (Declining-balance Method):
- Year 1: $30,000
- Year 2: $22,500
- Year 3: $16,875
- Year 4: $12,656.25
Bus 3 (Units-of-activity Method):
- Year 1: $14,400
- Year 2: $20,400
- Year 3: $18,000
To calculate the depreciation expense for each bus, we will use the respective depreciation methods.
1. Straight-line depreciation method:
The formula for straight-line depreciation is: (Acquired Cost - Salvage Value) / Useful Life
For Bus 1:
Depreciation Expense = (96,000 - 6,000) / 5
Depreciation Expense = 18,000
2. Declining-balance depreciation method:
The double-declining rate is calculated as 1 / Useful Life.
The formula for declining-balance depreciation is: Book Value * Double-Declining Rate
For Bus 2:
Double-declining rate = 1 / 4 = 0.25
Year 1:
Depreciation Expense = 120,000 * 0.25 = 30,000
Accumulated Depreciation = 30,000
Year 2:
Book Value = 120,000 - Accumulated Depreciation = 120,000 - 30,000 = 90,000
Depreciation Expense = 90,000 * 0.25 = 22,500
Accumulated Depreciation = 30,000 + 22,500 = 52,500
Year 3:
Book Value = 90,000 - Accumulated Depreciation = 90,000 - 52,500 = 37,500
Depreciation Expense = 37,500 * 0.25 = 9,375
Accumulated Depreciation = 52,500 + 9,375 = 61,875
3. Units-of-activity depreciation method:
The formula for units-of-activity depreciation is: (Acquired Cost - Salvage Value) / Total Miles * Actual Miles of Use
For Bus 3:
Depreciation Expense = (80,000 - 8,000) / 120,000 * (24,000 + 34,000 + 30,000)
Depreciation Expense = 72,000 / 120,000 * 88,000
Depreciation Expense = 52,800
Therefore, the depreciation expenses for each bus are:
- Bus 1: $18,000
- Bus 2: $30,000 (Year 1), $22,500 (Year 2), $9,375 (Year 3)
- Bus 3: $52,800