Concord Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 157,000 miles. Taxi no. 10 cost $73,750 and is expected to have a salvage value of $3,100. Taxi no. 10 was driven 32,900 miles in 2022 and 21,200 miles in 2023. (a1) Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.) Depreciation cost $ per mile
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.
Based on the unit per activity method, there is a requirement of calculation of depreciation rate per mile.
The formula used to calculate depreciation rate per mile is:
The formula used for calculation of depreciation is:
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