Response to the following problem:
Roberto Trucks Inc. purchased a delivery van on January 1, 2016. Assume this was the company's only capital asset and that the company uses the ½ year rule in the year of acquisition and disposal for straight-line and double-declining balance depreciation methods.
The following information is available.
Cost $11,000
Estimated useful life 4 years or 75,000 kms.
Residual value $2,000
The truck was driven 20,000 km in 2016.
Required:
1. Calculate the depreciation for 2016 under each of the following methods:
a. Usage
b. Straight-line
c. Double-declining balance
2. Compare the depreciation expense and carrying amount for 2016 under each of these methods.
3. If one of management's objectives is to maximize 2016 net income, what method should be adopted?