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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.
Financial Accounting
Solutions
Financial Accounting
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)
Determine the depreciable cost of the tractor.
Explanation of Solution
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:
Determine the depreciable cost of the tractor
(b)
Determine the depreciation rate.
(c)
Determine the units-of-activity depreciation for the year.
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