A Diesel powered tractor with a cost of $90,000 and estimated residual value of $15,000 is expected to have a useful operating life of 30,000 hours

A Diesel powered tractor with a cost of $90,000 and estimated residual value of $15,000 is expected to have a useful operating life of 30,000 hours. During April, the tractor was operated 120 hours. Determine the depreciation for the month.

Expert Solution

Unit of activity method : The depreciation expense is computed on the basis of units generated in a year using this method of depreciation. This method is appropriate when a company's productivity rate fluctuates.

Calculation for depreciation for the month

Depreciation expense = Depreciation rate x No.of hours used

=$2.50 per hour x 120 hours

=$300

Calculation of Depreciation rate

Depreciation rate = Cost - Residual value / Estimated units of useful life

=$90,000 - $15,000 / 30,000 hours

=$75,000 / 30,000

$2.50 per hour

Therefore,the depreciation for the month under units of activity method is $300

balaji rao answered 2 years ago

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