Units-of-activity Depreciation A truck acquired at a cost of $425,000 has an estimated residual value of $21,800, has an estimated useful life of 63,000 miles, and was driven 5,700 miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places. (a) The depreciable cost 403,200 (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.
I know that to determine the
(a) Depreciable cost = Cost - salvage value
= 425,000 - 21,800
= $403,200
(b) Depreciation rate per mile = Depreciable cost/ useful life
= 403,200/63,000
= $6.40 per mile
(c) Units of activity depreciation per the year = Annual units × depreciation per unit
= 5,700 × 6.40
= $36,480
Step by step
Solved in 2 steps
