Homework SoursePart 1 The Pablo Paving Company purchased a new dump truck f
Part 1: The Pablo Paving Company purchased a new dump truck for $125,000 at the beginning of Year 1. It is estimated that the residual value will be $15,000 and have a useful life of 5 years. Prepare a depreciation schedule using each of the 4 methods. Round %s to 2 decimal places. (Original question which I have already done, I need part 2 worked please)
Part 2: If the Dump Truck is sold for $120,000 at the end of year 3, what is the gain/loss under each method?
There are 4 methods of depreciation (Straight line, Sum of years digits, double depreciation, and modified acc. cost recovery.
| Part 1: The Pablo Paving Company purchased a new dump truck for $125,000 at the beginning of Year 1. It is estimated that the residual value will be $15,000 and have a useful life of 5 years. Prepare a depreciation schedule using each of the 4 methods. Round %s to 2 decimal places. (Original question which I have already done, I need part 2 worked please) Part 2: If the Dump Truck is sold for $120,000 at the end of year 3, what is the gain/loss under each method? There are 4 methods of depreciation (Straight line, Sum of years digits, double depreciation, and modified acc. cost recovery. |
Solution
Answer
Total Cost of the Truck = $125,000
Salvage Value = $15,000
Useful Life = 5 Years
Straight Line Method
Depreciation Per year = (Cost – Salvage Value) / Useful Life
= (125,000 - 15,000) / 5
= $22,000 per year
Depreciable value = Cost – Salvage Value
= 110,000 (125,000 – 15,000)
Depreciation Rate = 1 / Useful Life
1 / 5
Depreciation Rate = 20%
Depreciation = Depreciation rate * Cost
Depreciation for the Year
Date
Asset Cost
Depreciable Cost
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
Book Value
125,000
125,000
Year 1
110,000
20%
22,000
22,000
103,000
Year 2
110,000
20%
22,000
44,000
81,000
Year 3
110,000
20%
22,000
66,000
59,000
Year 4
110,000
20%
22,000
88,000
37,000
Year 5
110,000
20%
22,000
110,000
15,000
At the Year 3 end the book value of Truck is $59,000,
Profit = Sales value – Book Value
= 120,000 - 59,000
Profit on Sale = $61,000
Sum of the Year digit Method
Depreciable Value = 110,000 (125,000 – 15,000)
Depreciation = Fraction * Depreciable Value
Year
Cost
Remaining Life of Machine
Fraction
Depreciation
Year 1
$110,000
5
5/15
36,667
2
$110,000
4
4/15
29,333
3
$110,000
3
3/15
22,000
4
$110,000
2
2/15
14,667
5
$110,000
1
1/15
7,333
Total
15
Accumulated Depreciation till Year 3 end = (36,667 + 29,333 + 22,000)
= 88,000
Book Value at Year 3 End = Cost – Accumulated Depreciation
= 125,000 – 88,000
= 37,000
At the Year 3 end the book value of Truck is $37,000
Profit = Sales value – Book Value
= 120,000 - 37,000
Profit on Sale = $83,000
Double Declining Balance
Depreciation rate = 2 * Straight line depreciation rate
= 2 * 20%
Depreciation rate = 40%
Depreciation = Book Value * Depreciation Rate
Depreciation for the Year
Date
Asset Cost
Depreciable Cost
Book Value
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
Beginning Year 1
125,000
125,000
Year 1
125,000
75,000
40%
50,000
50,000
Year 2
45,000
40%
30,000
80,000
Year 3
27,000
40%
18,000
98,000
Year 4
16,200
40%
10,800
108,800
Year 5
9,720
40%
6,480
115,280
At the Year 3 end the book value of Truck is $22,000,
Profit = Sales value – Book Value
= 120,000 - 27,000
Profit on Sale = $93,000
MACRS Method
Depreciation = Rate * Cost of Truck
Year
Asset Cost
Depreciable Cost
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
Book Value
Beginning Year 1
125,000
Year 1
125,000
20.00%
25000
25000
100,000
Year 2
125,000
32.00%
40000
65000
60,000
Year 3
125,000
19.20%
24000
89000
36,000
Year 4
125,000
11.52%
14400
103400
21,600
Year 5
125,000
11.52%
14400
117800
7,200
Year 6
125,000
5.76%
7200
125000
0
At the Year 3 end the book value of Truck is $22,000,
Profit = Sales value – Book Value
= 120,000 - 36,000
Profit on Sale = $84,000
| Depreciation for the Year | ||||||
| Date | Asset Cost | Depreciable Cost | Depreciation Rate | Depreciation Expense | Accumulated Depreciation | Book Value |
| 125,000 | 125,000 | |||||
| Year 1 | 110,000 | 20% | 22,000 | 22,000 | 103,000 | |
| Year 2 | 110,000 | 20% | 22,000 | 44,000 | 81,000 | |
| Year 3 | 110,000 | 20% | 22,000 | 66,000 | 59,000 | |
| Year 4 | 110,000 | 20% | 22,000 | 88,000 | 37,000 | |
| Year 5 | 110,000 | 20% | 22,000 | 110,000 | 15,000 |
