On January 1, 2021, the Excel Delivery Company purchased a delivery van for $51,000. At the end of its five-year service life, it is estimated that the van will be worth $6,000. During the five-year period, the company expects to drive the van 171,000 miles. Required: Calculate annual depreciation for the five-year life of the van using the Units of production using miles driven as a measure of output, and the following actual mileage: (Do not round intermediate calculations.)
Homework Answers
Under units of production method, first we will calculate the rate per mile and then we will calculate the depreciation expense.
Rate per mile = Cost - Salvage value / Estimated miles
Estimated miles = 171000
Rate per mile = ($51000 - $6000) / 171000 = $45000 / 171000 = $0.263157894 per mile
In the next step, we will compute the depreciation expense as per below:
Depreciation expense = Rate per mile * Miles driven
Depreciation for 2021 :
Miles driven in 2021 was 11000, so
Depreciation for 2021 = $0.263157894 * 11000 = $2895
Depreciation for 2022 :
Miles driven in 2021 was 42000, so
Depreciation for 2021 = $0.263157894 * 42000 = $11053
Depreciation for 2023 :
Miles driven in 2023 was 43000, so
Depreciation for 2023 = $0.263157894 * 43000 = $11316
Depreciation for 2024 :
Miles driven in 2024 was 38000, so
Depreciation for 2021 = $0.263157894 * 38000 = $10000
Depreciation for 2025 :
Miles driven in 2025 was 39000, so
Depreciation for 2025 = $0.263157894 * 39000 = $10263
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