The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was
purchased for a cost of $118,000 at the beginning of the year was expected to deliver 118,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction Construction Sites: A B C D Tons Delivered: 1,800 3,300 3,800 1,300 How much truck depreciation should be allocated to Site A
Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.
It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset.
Both investments may be of equal risks, but by virtue of having different maturity dates, they will not be priced the same.
This is because the discount rate (opportunity cost) will discount the maturity value more the longer the investment is such that the present value is lower.
4 year investment
= 1,000 / (1.068)^4
= $768.63
5 year investment
= 1,000 / (1.068)^5
= $719.69
The 5 year investment will have a lower present value and will be charged lower.