BagODonuts Company bought a used delivery truck on January 1, 201

BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles).  BagODonuts BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles).  BagODonuts Solution 1.a. In straightline method, each year depreciates 1/4=25% Annual depreciation using straight line method = (initial value-salvage value)/ no of years = (19,200-2,400)/4 = 4,200 So 2010 depreciation = 2011 depreciation = 2012 depreciation = 2013 depreciation = 4,200 1.b. Double declining method = 2*straightline % = 2*25% = 50% 2010 depreciation = 50%*2010 initial book value = 50%*19,200 = 9,600 Book value at end of 2010 = 19,200-9,600=9,600 2011 depreciation = 50%*2011 initial book value = 50%*9,600 = 4,800 Book value at end of 2011 = 9,600-4,800=4,800 2012 depreciation = 50%*2012 initial book value = 50%*4,800 = 2,400 Book value at end of 2012 = 4,800-2,400=2,400 As the book value has reached salvage value, there is no more depreciation possible. So 2013 depreciation = 0 1.c. 2010 depreciation = (initial value-salvage value) * 2010 miles/total miles = (19,200- 2,400)*8000/30,000 = 4,480 2011 depreciation = (initial value-salvage value) * 2011 miles/total miles = (19,200- 2,400)*8500/30,000 = 4,760 2012 depreciation = (initial value-salvage value) * 2012 miles/total miles = (19,200- 2,400)*5500/30,000 = 3,080 2013 depreciation = (initial value-salvage value) * 2013 miles/total miles = (19,200- 2,400)*8000/30,000 = 4,480 2. The unit of production method best tracks the wear and tear as it is directly linked to the number of miles driven by the van. 3. BogODonuts will prefer the double declining method as it provides for accelerated depreciation in the initial years which leads to lesser pre-tax income and hence lower taxes. Hope this helped ! Let me know in case of any queries.