On January 1, 2006, the Sepe Delivery Company purchased a delivery van for $33,0

Question

On January 1, 2006, the Sepe Delivery Company purchased a delivery van for $33,000. At the end of its five-year service life, it is estimated that the van will be worth $4,000. During the five-year period, the company expects to drive the van 100,000 miles. Using the units-of-production depreciation method what would the annual depreciation for 2008 be based on these actuals:

Year Miles
2006 22,000
2007 24,000
2008 15,000
2009 20,000
2010 21,000
1) $6,600
2) $7,200
3) $4,350
4) $4,500
please show work

Explanation / Answer

Using the units of production method we are going to allocate depreciation into $/mile.

The van has 100,000 miles that we can use before it is fully depreciated and its total depreciable value is $29,000 (33000 - 4000). Therefore:

29,000/100,000 = $0.29 per mile.

In 2008 we depreciated 15,000 miles. 15,000 x .29 = $4,350.Please remember to rate - thanks!

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