   # Speedy Delivery has a very lazy accountant. When originally setting up the delivery trucks into the accounting system, the accountant did not want to calculate the expected salvage value for each vehicle. He left salvage value at $0 even though this is not the case. Explain what leaving the salvage value at$0 would do for depreciation. Discuss the differences, if any, between straight-line, double-declining, and units-of-production methods. FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

#### Solutions

Chapter
Section FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 3TP
Textbook Problem
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## Speedy Delivery has a very lazy accountant. When originally setting up the delivery trucks into the accounting system, the accountant did not want to calculate the expected salvage value for each vehicle. He left salvage value at $0 even though this is not the case. Explain what leaving the salvage value at$0 would do for depreciation. Discuss the differences, if any, between straight-line, double-declining, and units-of-production methods.

To determine

Introduction:

Salvage value refers to the price at which it can be sold or worth as a trade-in at the end of useful life of an ssset for an entity. Past experience helps to estimate salvage value for an asset.

To explain:

The affects of leaving salvage value $0 on depreciation, and the differences between straight-line, double-declining and units-of-production methods of depreciation. ### Explanation of Solution When salvage value is estimated$0 for calculating depreciation, it will lead to increase in depreciation every year, leaving the carring value to be low at the end of each year.

Straight-line method of depreciation: It is a method of depreciation wherein an equal amount of depreciation is charged every year till the useful life of an asset. That is, amount of depreciation charged is constant throught the economic life of an asset for an entity.

Formula to calculate depreciation using straight line method is given below:

Depreciation=(Cost of AssetSalvage ValueUseful Life of an Asset)

Double-declining method of depreciation: This method is considered as complex amongst the others as it considers both time and use of an asset. Depreciation charged using this method is more in starting year as compared to later year in a useful life of an asset.

When depreciation is calculated, salvage value is not considered in this method; whereas, cost of asset is multiplied by depreciation percentage. Also, depreciation expense is not allowed to fall below the salvage value throughout the life of an asset

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