I am trying to figure out if I am doing this accounting problem correctly?
Old van was purchased 5 years ago at 20,000. estimated life was 5years with salvage value of 5,000.
van has to have repairs enging and tranny for 4000 and will extend life of van by 5years. new tires and other repairs estimated at 1200.
a new van with trade-in value 6,000 on old van with purchase of new van costing 30,000. if new van is purchased and plan to depreciate it using units of production method. this units would be based on number of miles driven. the new van salvage value is 10,000 after its useful life of 100,000.
1. Depreciation expense for existing ban.
cost of van 20,000
less: salvage 5,000
Depreciatable cost: 15000
2. the repaired van (the deprication of existing van).
original cost 20,000
accumalated deprication (20,000-5,000)/5= 3000
time 5 years = 15000
new risual value= 20,000-15,000=5,000
cost of repairs 5200 with 5 year life.
this is as far as i have gotten I don't know what else to do? Or if this is even right. Please help me...
you need a smaller useful life like 5 or 10 year then you take the salvage minus the cost of the van and then you divide that amount by the useful life. Here is an example $20,000.00- $5,000.00= $15,000.00/ 10years = $1,500.00 is the amount of depreciation. Hope this helps
To determine if you are approaching the accounting problem correctly, let's continue with the calculation for the depreciation expense of the existing van and the repaired van.
1. Depreciation expense for the existing van:
- The cost of the van is $20,000.
- The salvage value is $5,000.
- The depreciable cost, which is the cost minus the salvage value, is $20,000 - $5,000 = $15,000.
- Since the estimated life of the van is 5 years, the annual depreciation expense would be $15,000 / 5 years = $3,000.
2. Depreciation expense for the repaired van:
- The original cost of the van is $20,000.
- The accumulated depreciation is ($20,000 - $5,000) / 5 years = $3,000.
- The remaining depreciable cost is the cost minus the accumulated depreciation, which is $20,000 - $3,000 = $17,000.
- The cost of repairs is $4,200 with a 5-year life, so the annual depreciation expense for the repairs would be $4,200 / 5 years = $840.
- The new residual value after the repairs is $17,000 - $840 = $16,160.
Now, for the new van:
- The trade-in value of the old van is $6,000.
- The cost of the new van is $30,000.
- The depreciation will be calculated using the units of production method based on the number of miles driven.
- The useful life of the new van is 100,000 miles, and the salvage value at the end of its useful life is $10,000.
To calculate the depreciation expense for the new van, you need to know the number of miles driven in a given period and the total estimated miles over the life of the van. Then you can divide the remaining depreciable cost by the total estimated miles to determine the depreciation expense per mile.
Please provide the information about the number of miles driven and the total estimated miles to get the accurate depreciation expense for the new van under the units of production method.