Blue Spruce Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 140,000 miles. Taxi no. 10 cost $45,000 and is expected to have a salvage value of $200. Taxi no. 10 is driven 28,000 miles in year 1 and 18,400 miles in year 2. a. Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places) b. Compute the depreciation for each year. (Round answers to 2 decimal places)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Blue Spruce Taxi Service uses the units-of-activity method in computing
a. Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places)
b. Compute the depreciation for each year. (Round answers to 2 decimal places)
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