On March 31 of the current year, a truck was purchased for $63,700. The truck ha

Question

On March 31 of the current year, a truck was purchased for $63,700. The truck has an estimated residual value of $4,200 and is expected to be driven 100,000 miles over the next 5 years. During the current year, the truck will be driven 12,600 miles. The firm wishes to avoid the depreciation method that will give them the highest depreciation expense for the current year ended December 31. How much higher or lower will depreciation expense be in the current reporting year if the firm uses the units-of-production method instead of the straight-line (SL) method?

Explanation / Answer

1 calculation of the straight line depreciation depreciation (cost - salvage value ) / number of years of use (63700 - 4200 ) / 5 11900 2 calculation of the units of production depreciation depreciation (cost - salvage value ) * number of units produced / life in number of units ( 63700 - 4200 ) * 12600 / 100000 7497 the depreciation as per the units of production method will be lower by 4403 ( 11900 - 7497 ) from the change in the method of depreciation in the current reporting year

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