1. Class Example
Given the following information regarding an automobile purchased by the company on January 2, 2005:
Cost to acquire = $10,000
Estimated life = 4 years
Estimated miles = 100,000 miles
Salvage value = $2,000
Calculate depreciation expense for the first two years under each of the following methods.

2. (1) Units-of-production (Activity)
Assume that the car was driven 20,000 miles in the year 2005, 30,000 miles in 2006,40,000 in 2007 and 20,000 in 2008
Annual depreciation =
Cost - Salvage Value x Current Activity
Total expected activity
Rate = (10, )/100,000 = $0.08/mi.
For 2005= $0.08 x 20,000 = $1,600
For 2006 = $0.08 x 30,000 = $2,400
For 2007 = $0.08 x 40,000 = $3,200
For 2008 = $0.08 x 20,000 = $1,600XX (over)
So just take bal. to $8,000 = $800 in 2008

3. (2) Straight-Line Annual depreciation = Cost - Salvage Estimated Life
= , ,000 = $2,000 per year
4 years

4. (3) Double Declining Balance
DDB is an accelerated depreciation technique. It generates more expense in the early years and less in the later years.
Annual depreciation = % (Cost - A/D)
where A/D is the accumulated depreciation for all prior years, and the percentage is double the straight line rate, or 2 x 1/Estimate life. In the example, the % = 2 x 1/4 = 2/4 = 50%.
Depreciation expense (D.E.)for:
2005 = 50% x (10, ) = $5,000
2006 = 50% x(10,000-5,000) = $2,500
2007 = 50% x (10,000-7,500) = $1,250 XX over
So just take bal. to $8,000 = $ 500
2008 (carry fully depreciated) =$0