# Computing first-year depreciation and book valueOn January 1, 2018, Air Canadians purchased a used airplane for \$37,000,000. Canadians expect the plane to remain useful for five years (4,000,000 miles) and to have a residual value of \$5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year.RequirementsCompute Air Canadian’s first-year depreciation expense on the plane using the following methods:Straight-lineUnits-of-productionDouble-declining-balanceShow the airplane’s book value at the end of the first year for all three methods.

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Computing first-year depreciation and book value

On January 1, 2018, Air Canadians purchased a used airplane for \$37,000,000. Canadians expect the plane to remain useful for five years (4,000,000 miles) and to have a residual value of \$5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year.

Requirements

Compute Air Canadian’s first-year depreciation expense on the plane using the following methods:

• Straight-line
• Units-of-production
• Double-declining-balance

Show the airplane’s book value at the end of the first year for all three methods.

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Step 1

Depreciation is the loss in the value of the asset caused due to its usage, wear and tear.

There are different methods available for computation of depreciation like, Straight line method, sum of digits, double declining method.

Depreciation under straight-line depreciation

= (Cost of the asset – salvage value) ÷ Estimated Useful life of the asset

Depreciation under Double- Declining Balance

The rate of depreciation is two times straight line rate of depreciation.

Rate of Deprecation = 2* 1/5 = 40%

Step 2

Depreciation under Straight Line method

Step 3

Depreciation under Units o...

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