R. C. Smith purchased a truck for $30,500 to be used in his business. He is considering depreciating the truck by two methods: units-of-output (assuming total miles driven of 80,000) and double-declining balance (assuming a five-year useful life). The truck is expected to be sold for approximately $6,500 at the end of its useful life. Prepare a comparison of the first year’s depreciation expense that will be recognized under these methods, assuming the truck was actually driven 10,000 miles in the first year. Briefly state why the difference between the two is so great.
R. C. Smith purchased a truck for $30,500 to be used in his business. He is considering depreciating the truck by two methods: units-of-output (assuming total miles driven of 80,000) and double-declining balance (assuming a five-year useful life). The truck is expected to be sold for approximately $6,500 at the end of its useful life. Prepare a comparison of the first year’s depreciation expense that will be recognized under these methods, assuming the truck was actually driven 10,000 miles in the first year. Briefly state why the difference between the two is so great.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 7E: Loban Company purchased four cars for 9,000 each and expects that they will be sold in 3 years for...
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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R. C. Smith purchased a truck for $30,500 to be used in his business. He is considering depreciating
the truck by two methods: units-of-output (assuming total miles driven of 80,000) and
double-declining balance (assuming a five-year useful life). The truck is expected to be sold
for approximately $6,500 at the end of its useful life. Prepare a comparison of the first year’s
depreciation expense that will be recognized under these methods, assuming the truck was
actually driven 10,000 miles in the first year. Briefly state why the difference between the two
is so great.
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