Reference no: EM132587411

Question - Mirinda Services Sdn Bhd purchased a used airplane at a cost of RM 46,000,000 on 1 January 2019. Mirinda Services Sdn Bhd expects the plane to remain useful for eight years or 6,000,000 miles, and to have a residual value of RM 4,000,000. It is expected that the plane to be flown 1,500,000 miles the first year and 1,200,000 miles the second year.

Required -

a) Explain the purpose of depreciation in financial accounting.

b) Calculate the second year (2020) depreciation expense on the plane using the following methods:

i) Straight-line method

ii) Units of production method

iii) Double declining balance

c) Calculate the balance in accumulated depreciation at the end of the second year for all the three methods above.

d) Based on the computation above, suggest the best depreciation method for Mirinda Services Sdn Bhd if the company aims to report the highest net income in the early years of asset use.