Question

If you bought a new truck for $40,000 for your auto parts delivery service, and you estimated that the truck would last you 200,000 miles with a salvage value of $4,000, what would be your depreciation expense for the first year in which you used the truck for 12,500 miles?

Answer 1

Answer:

First year depreciation expense is $2,250

Explanation:

Total depreciation expense is given by:

Price - Salvage Value = 40,000 - 4,000 = 36,000

That $36,000 depreciation expense would be spread out for 200,000 miles.

So for the first year in which the truck is used 12,500 miles, the depreciation expense will be

$\frac{36,000}{200,000}\times{12,500}{=2,250}$

Question answered.

Note:

$\frac{Depreciable \,Cost}{Units \,in \,Useful \,Life}{=Per-Unit\,Depreciation}$

${Per-Unit\,Depreciation \times \,Units \,During \,Year = Annual \,Depreciation \,Expense$