Cullumber Ltd. purchased a delivery truck on January 1, 2018, at a cost of $74,160. The truck is expected to have a residual value of $7,910 at the end of its 4-year useful life. Cullumber has a December 31 year end. Use the diminishing-balance method and assume the depreciation rate is equal to double the straight-line rate.
Calculate the depreciation for each year of the truck’s life.
2018
2019
2020
2021
my answers:
74160-7910=66250/4= 16562.5?
2018 = 66250
2019= 33125
2020 22308
2021 16562
Well, well, well. Looks like we have a calculation conundrum on our hands! But fear not, for Clown Bot is here to add a touch of humor to the world of numbers and financial calculations. Let's dive in, shall we?
For the year 2018, we start with the cost of the truck - $74,160. However, since you mentioned using the diminishing-balance method with a depreciation rate double the straight-line rate, we need to calculate the double rate first. The straight-line rate is 1/4 (1 divided by the number of years, which in this case is 4). So, the double rate is 2 times 1/4, which gives us 1/2.
Now, let's calculate the depreciation for each year, using the diminishing-balance method and the double rate:
2018: $74,160 multiplied by 1/2 equals $37,080.
2019: We take the remaining balance from the previous year, which is $74,160 minus $37,080, giving us $37,080. Multiply this by 1/2 to get $18,540.
2020: The previous year's remaining balance is $37,080 minus $18,540, which equals $18,540. Multiply this by 1/2 to get $9,270.
2021: Finally, we take the remaining balance from the previous year, which is $18,540 minus $9,270, giving us $9,270. Multiply this by 1/2 to get $4,635.
So, according to my funny calculations, the depreciation for each year would be:
2018: $37,080
2019: $18,540
2020: $9,270
2021: $4,635
Remember, these calculations are based on the diminishing-balance method with a double depreciation rate. And if you're feeling puzzled, just remember that math can always use a little clowning around!
Using the diminishing-balance method with a depreciation rate of double the straight-line rate, the depreciation expense for each year can be calculated as follows:
2018:
Depreciation = (Carrying value at the beginning of the year) * (Depreciation rate)
Carrying value at the beginning of the year = $74,160 (purchase cost)
Depreciation rate = 2 * (1 / 4) = 0.5 (50% depreciation rate)
Depreciation in 2018 = $74,160 * 0.5 = $37,080
2019:
Carrying value at the beginning of the year = $74,160 - $37,080 (depreciation expense of the previous year)
Depreciation in 2019 = Carrying value at the beginning of the year * Depreciation rate
Depreciation in 2019 = ($74,160 - $37,080) * 0.5 = $18,540
2020:
Carrying value at the beginning of the year = $74,160 - $37,080 - $18,540 (depreciation expense of the previous years)
Depreciation in 2020 = Carrying value at the beginning of the year * Depreciation rate
Depreciation in 2020 = ($74,160 - $37,080 - $18,540) * 0.5 = $9,270
2021:
Carrying value at the beginning of the year = $74,160 - $37,080 - $18,540 - $9,270 (depreciation expense of the previous years)
Depreciation in 2021 = Carrying value at the beginning of the year * Depreciation rate
Depreciation in 2021 = ($74,160 - $37,080 - $18,540 - $9,270) * 0.5 = $4,635
Therefore, the depreciation for each year would be:
2018: $37,080
2019: $18,540
2020: $9,270
2021: $4,635
To calculate the annual depreciation using the diminishing-balance method, follow these steps:
Step 1: Determine the depreciable cost.
Depreciable Cost = Initial Cost - Residual Value
Depreciable Cost = $74,160 - $7,910
Depreciable Cost = $66,250
Step 2: Determine the depreciation rate.
The depreciation rate for the diminishing-balance method is twice the straight-line rate. Since the useful life is 4 years, divide 100% by 4 to get the straight-line rate.
Straight-Line Rate = 100% / 4 = 25%
Depreciation Rate = 2 * Straight-Line Rate
Depreciation Rate = 2 * 25% = 50%
Step 3: Calculate the annual depreciation.
In the first year, apply the depreciation rate to the depreciable cost.
2018 Depreciation = Depreciable Cost * Depreciation Rate
2018 Depreciation = $66,250 * 50%
2018 Depreciation = $33,125
In the subsequent years, apply the depreciation rate to the remaining book value (or net carrying amount) from the previous year.
2019 Depreciation = (Depreciable Cost - Accumulated Depreciation from 2018) * Depreciation Rate
2019 Depreciation = ($66,250 - $33,125) * 50%
2019 Depreciation = $33,125 * 50%
2019 Depreciation = $16,562.50
2020 Depreciation = ($66,250 - Accumulated Depreciation from 2018 and 2019) * Depreciation Rate
2020 Depreciation = ($66,250 - $33,125 - $16,562.50) * 50%
2020 Depreciation = $16,562.50 * 50%
2020 Depreciation = $8,281.25
2021 Depreciation = ($66,250 - Accumulated Depreciation from 2018, 2019, and 2020) * Depreciation Rate
2021 Depreciation = ($66,250 - $33,125 - $16,562.50 - $8,281.25) * 50%
2021 Depreciation = $8,281.25 * 50%
2021 Depreciation = $4,140.63
Therefore, the depreciation values for each year are as follows:
2018: $33,125
2019: $16,562.50
2020: $8,281.25
2021: $4,140.63