-35 Units-of-Production Depreciation Method Th e Rockland Transport Company has
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Question
-35 Units-of-Production Depreciation Method Th e Rockland Transport Company has many trucks that have an estimated useful life of 200,000 iles. The company computes depreciation on a mileage basis. Suppose Rockland purchases a new truck for S100,000 cash. Its expected residual value is $10,000. Its mileage during year 1 is 60,000 and during year 2 is 90,000. 1. What is the depreciation expense for each of the 2 years? 2. Compute the gain or loss if Rockland sells the truck for $40,000 at the end of year 2.Explanation / Answer
Cost of mahine is $100000 and salvage value is $10000.
Under the units of production method,the truck's deprecialble cost is $90000.devided by 200000 miles, resulting in depreciation of $0.45 per mile.
Depreciation in year 1 = 60000miles*$0.45 per mile = $27000
Depreciation in year 2 = 90000miles*$0.45 per mile = $40500
Total depreciation is $67500. So the cost of crane is now $32500
Rocklandsellsthe truck for $40000 while the cost is $32500 sothere is a profit of $7500.
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