Exercise 11-1 (Algo) Depreciation methods [LO11-2] [The following information applies to the questions displayed below.] On January 1, 2021, the Excel Delivery Company purchased a delivery van for $52,000. At the end of its five-year service life, it is estimated that the van will be worth $4,000. During the five-year period, the company expects to drive the van 165,000 miles. Required: Calculate annual depreciation for the five-year life of the van using each of the following methods.

Straight line depreciation expense each year of the useful life would be $9,600

The double declining method

Deprecation expense in December 2021 = $20,800

Depreciation expense in 2022 = $12,480

Depreciation expense in 2023= $7488

Depreciation expense in 2024 = $4,492.80

Deprecation expense in 2025 = $2695.68

Explanation:

Straight line depreciation method = (Cost of asset - Salvage value) / useful life

Cost of asset = $52,000

Salvage value = $4,000

Useful life = 5

($52,000 - $4,000) / 5 = $9,600

The straight line depreciation method allocates the same deprecation expense for each year of the useful life of the asset.

So the deprecation expense each year would be $9,600.

Double declining depreciation method = Depreciation factor x cost of the asset

Depreciation factor = 2 x (1/useful life)

2 × (1/5) = 0.4

Deprecation expense in December 2021 = 0.4 x $52,000 = $20,800

Net book value = $31,200

Depreciation expense in 2022 = 0.4 x $31,200 = $12,480

Net book value = $31,200 - $12,480 = $18,720

Depreciation expense in 2023 = 0.4 x $18,720 = $7488

Net book value = $18,720 - $7488 =$11,232

Depreciation expense in 2024 = 0.4 x $11,232 = $4,492.80

Net book value = $11,232 - $4,492.80 = $6,739. 20

Deprecation expense in 2025 = 0.4 × $6,739. 20 = $2695.68

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