Question

On January​ 1, 2025, a corporation acquired a truck for $ 140 comma 000. Residual value was estimated to be $ 20 comma 000. The truck can be driven for 110 comma 000 miles or a useful life of four years. Actual usage of the truck was recorded as 13 comma 000 miles for the first year. What is the amount of depreciation expense for the first year calculated using the unitsminusofminusproduction ​method?

Answer 1

To calculate the depreciation expense using the units-of-production method, you need to follow these steps:

1. Calculate the total depreciable cost: This is the acquisition cost minus the residual value.

   \[ \text{Total Depreciable Cost} = \text{Cost} - \text{Residual Value} = 140,000 - 20,000 = 120,000 \]

2. Calculate the depreciation per mile: This is done by dividing the total depreciable cost by the total estimated miles the truck can be driven over its useful life.

   \[ \text{Depreciation per Mile} = \frac{\text{Total Depreciable Cost}}{\text{Total Estimated Miles}} = \frac{120,000}{110,000} = 1.0909 \text{ (approximately)} \]

3. Calculate the depreciation expense for the first year: Multiply the actual miles driven in the first year by the depreciation per mile.

   \[ \text{Depreciation Expense} = \text{Actual Miles Driven} \times \text{Depreciation per Mile} = 13,000 \times 1.0909 \approx 14,182 \]

Thus, the depreciation expense for the first year, calculated using the units-of-production method, would be approximately $14,182.