Zeff Company purchases a delivery van on January 1, Year 1, at a cost of $15,849 It has a useful life of four years and no estimated salvage value When making the purchase decision, the company anticipated that the use of the van would generate a revenue (cash) inflow of $5,000 each year, assumed t...

Requirement 1 a Annual depreciation expense Cost salvage life 3962 15849 0 4 End of Depreciation Accumulated Book Year Expense Depreciation Value 0 15849 1 3962 3962 11887 2 3962 7924 7925 3 3962 1188 ...

Zeff Company purchases a delivery van on January 1, Year 1, at a cost of $15,849. It

Question:

Zeff Company purchases a delivery van on January 1, Year 1, at a cost of $15,849. It has a useful life of four years and no estimated . When making the purchase decision, the company anticipated that the use of the van would generate a revenue (cash) inflow of $5,000 each year, assumed to occur at the end of the year. The that equates the purchase price to the expected cash inflows is 10%. Assume that depreciation is the company’s only expense for the year.

Requirements:
1. Using straight-line depreciation, do the following for each of the four years:
a. Compute accumulated depreciation and the net book value of the van.
b. Prepare Zeff’s income statement assuming that the $5,000 expected inflows occur.
c. Compute the return on beginning net fixed assets.
2. Repeat requirements 1.a. through 1.c. using the discounted present value method of depreciation.
3. Which depreciation method provides the most useful information?
4. Why do you think that does not permit the discounted present value method of depreciation?

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