Assume that on September 30, 2017, AirUS, an international airline based in Germany, purchased a Jumbo aircraft at a cost of euro 42,500,000 (euro is the symbol for the euro). AirUS expects the plane to remain useful for five years (5,000,000 miles) and to have a residual value of euro 4,250,000. AirUS will fly the plane 350 comma 000 miles during the remainder of 2017.

Requried:
a. Compute AirUS's depreciation on the plane for the year ended December 31, 2017, using the straight-line method.
b. Compute AirUS's depreciation on the plane for the year ended December 31, 2017, using the units-of-production method.
c. Compute AirUS's depreciation on the plane for the year ended December 31, 2017, using the double-declining method

Question

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adnansoomro2019 adnansoomro2019 · Answer 1 · 2020-07-22T03:15:28+02:00

Answer:

A.7,650,000

B.2,677,500

C.17,000,000

Explanation:

DATA:

purchase cost = 42,500,000

Useful life = 5 years

Estimated useful life in miles = 5,000,000 miles

Salvage value = 4,250,000

Actual useful life in miles = 350,000miles

Solution

A. Depreciation (straight-line)= [tex]\frac{Cost-residualvalue}{Usefullife}[/tex]

Depreciation( straight-line)= [tex]\frac{42,500,000-4,250,000}{5}[/tex]

Depreciation( straight-line)= 7,650,000

B Depreciation (units of production)= (cost-Salvage value) x [tex]\frac{Actualunits}{Estimatedunits}[/tex]

Depreciation (units of production)= (42,500,000-4,250,000)x[tex]\frac{350,000}{5,000,000}[/tex]

Depreciation (units of production) = 2,677,500

C. Depreciation (Double declining) = 2 x cost x depreciation rate

Depreciation (Double declining) = 2 x 42,500,000 x 0.2(w)

Depreciation (Double declining) = 17,000,000

Working

Depreciation Rate = 1/Useful

Depeciation Rate = 1/ 05 = 0.2