Required: a. Prepare a tabular comparison of the annual depreciation and book value for each year under straight-line and Double Declining Balance depreciation b. Assume straight-line depreciation is used. 3 years after the purchase, and after using the truck less than expected, TNT Spain decided to change its useful life from 5 years to 6 years. Calculate depreciation expense for year 4. c. Assume TNT Spain chooses the straight-line method with a useful life of 5 years and a residual value of €6,000. What would be the journal entry if TNT Spain sells the truck for €30,000 (cash) after 3 years? Note: Points b. and c. are independent questions. You can ignore b. for solving c. and you can ignore c. for solving b
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.
Question 4
TNT Spain acquired recently a delivery truck in order to reinforce its distribution network in the South of the country. The acquisition value of the truck was $60,000, it has an expected useful life of 5 years, and a $6,000 expected residual (=salvage) value.
Required:
a. Prepare a tabular comparison of the annual
b. Assume straight-line depreciation is used. 3 years after the purchase, and after using the truck less than expected, TNT Spain decided to change its useful life from 5 years to 6 years. Calculate depreciation expense for year 4.
c. Assume TNT Spain chooses the straight-line method with a useful life of 5 years and a residual value of €6,000.
What would be the
Note: Points b. and c. are independent questions. You can ignore b. for solving c. and you can ignore c. for solving b
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