   Chapter 10, Problem 10.2BPE

Chapter
Section
Textbook Problem

Units-of-activity depreciationA 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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