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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Units-of-activity depreciation

A tractor acquired at a cost of $420,000 has an estimated residual value of $30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year.

(a)

To determine

Unit-of-activity Method: Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:

Depreciation per unit = CostResidual valueEstimated units of useful life

Depreciation Expense = Depreciation per unit × Usage

To determine: the depreciable cost of the tractor.

Explanation

Determinethe depreciable cost of the tractor.

Cost of the tractor= $420,000

Residual value of the tractor = $30,000.

DepreciableCost =Cost<

(b)

To determine
the depreciation rate.

(c)

To determine
the units-of-activity depreciation for the year.

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