question archive South Airlines purchased a 747 aircraft on January 1, 2019, at a cost of $35,000,000
South Airlines purchased a 747 aircraft on January 1, 2019, at a cost of $35,000,000
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South Airlines purchased a 747 aircraft on January 1, 2019, at a cost of $35,000,000. The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000. On January 1, 2022 the airline revises the total estimated useful life to 15 years with a revised salvage value of $3,500,000.
(1)Compute the depreciation and book value at December 31, 2021 using the straight-line method and the double-declining-balance method.
(2)Assuming the straight-line method is used, compute the depreciation expense for the year ended December 31, 2022.
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The computations are provided on the attached file.
Step-by-step explanation
| Straight line | ||||
| Cost | $ 35,000,000.00 | |||
| Salvage Value | $ 5,000,000.00 | |||
| Depreciable Cost | $ 30,000,000.00 | |||
| Useful Life | 20 | years | ||
| Depreciation expense per years | $ 1,500,000.00 | |||
| Depreciation | Accumulated | |||
| Year | Cost | expense | depreciation | Book value |
| 2019 | $ 35,000,000.00 | $ 1,500,000.00 | $ 1,500,000.00 | $ 33,500,000.00 |
| 2020 | $ 35,000,000.00 | $ 1,500,000.00 | $ 3,000,000.00 | $ 32,000,000.00 |
| 2021 | $ 35,000,000.00 | $ 1,500,000.00 |
$ 4,500,000.00 |
$ 30,500,000.00 |
| Double declining | ||||||
| Useful Life | 20 | years | ||||
| Depreciation Rate | (100% / 20 years) x 2 | |||||
| = | 10% | |||||
| Beginning | Depreciation | Accumulated | ||||
| Year | Cost | WDV | Rate | Expense | Depreciation | Book value |
| 2019 | $ 35,000,000.00 | $ 35,000,000.00 | 10% | $ 3,500,000.00 | $ 3,500,000.00 | $ 31,500,000.00 |
| 2020 | $ 35,000,000.00 | $ 31,500,000.00 | 10% | $ 3,150,000.00 | $ 6,650,000.00 | $ 28,350,000.00 |
| 2021 | $ 35,000,000.00 | $ 28,350,000.00 | 10% | $ 2,835,000.00 |
$ 9,485,000.00 |
$ 25,515,000.00 |
| Depreciation expense | ||||||
| Book Value as on December 31 2022 | $ 30,500,000.00 | |||||
| Revised salvaged value | $ 35,00,000.00 | |||||
| Depreciable cost | $ 27,000,000.00 | |||||
| Remaining useful life | 12 years | (15 years - 3 years) | ||||
| Revised annual depreciation |
$ 2,250,000.00 |
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