Preparing Depreciation Schedule for Cullumber Bus Lines
What is the purpose of a depreciation schedule?
A. To track the cost of an asset
B. To show the depreciation expense for each year
C. To calculate accumulated depreciation and net book value
D. All of the above
How do you calculate the depreciation cost per unit?
A. Divide the depreciable amount by the expected useful life in mileage
B. Subtract the salvage value from the cost of the asset and divide by the expected useful life in years
C. Add the salvage value to the cost of the asset and divide by the expected useful life in years
D. None of the above
Depreciation Schedule:
The depreciation schedule is a chart that tracks the cost of the asset, depreciation expenses, accumulated depreciation, and net book value over the years. It helps in monitoring the allocation of costs for the use of long-term assets.
Calculation of Depreciation Expenses:
Based on the data provided, the depreciation cost per unit is $0.53 per mile. The depreciation expenses for each year are as follows:
- 2022: $26,500
- 2023: $34,450
- 2024: $27,030
- 2025: $28,620
Additional Information:
The depreciable amount of the bus is $116,600, calculated as the cost of the bus minus the salvage value. This amount is divided by the expected useful life in mileage to determine the depreciation cost per unit. The total mileage over the 4-year period is 220,000 miles.
Understanding Depreciation Schedule:
A depreciation schedule is an essential tool for businesses to account for the gradual decrease in the value of their assets over time. By preparing a depreciation schedule, companies can accurately reflect the reduction in an asset's value in their financial statements.
The calculation of depreciation expenses allows businesses to spread out the costs of an asset's purchase over its useful life. This systematic allocation of costs helps in presenting a true and fair view of the company's financial position and profitability.
In the case of Cullumber Bus Lines, the depreciation schedule provides a clear breakdown of the asset's cost, annual depreciation expenses, accumulated depreciation, and net book value. This information enables the company to make informed decisions regarding asset management and replacement.
By understanding the concept of depreciation schedules and their significance in financial reporting, businesses can maintain transparency in their accounting practices and comply with relevant accounting standards.