Units-of-activity Depreciation A truck acquired at a cost of $235,000 has an estimated residual value of $14,500, has an estimated useful life of 42,000 miles, and was driven 3,800 miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places. (a) The depreciable cost $ (b) The depreciation rate $ per mile (c) The units-of-activity depreciation for the year $
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.
Units-of-activity Depreciation
A truck acquired at a cost of $235,000 has an estimated residual value of $14,500, has an estimated useful life of 42,000 miles, and was driven 3,800 miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places.
| (a) | The |
$ | |
| (b) | The depreciation rate | $ | per mile |
| (c) | The units-of-activity depreciation for the year | $ |
Units-of-activity method: Under the activity method, the depreciation expense is calculated on the basis of the asset’s activity such as the number of units produced or the number of hours the asset is used during the period. In other words, this method focuses on the actual use of the asset rather than the passage of time.
The formula for calculating depreciation expenses using the Units-of-activity method:
Depreciation expenses = (Cost of assets - Salvage value / Total life of the assets) * Actual assets used during the period
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