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6 June, 11:40

A light truck is purchased on January 1 at a cost of $35,000. It is expected to serve for eight years and have a salvage value of $5,000. It is expected to be used for 100,000 miles over its eight-year useful life. Using the units-of-production method, calculate the depreciation expense for the first and third years of use if the truck is driven 20,000 miles in year 1 and 24,000 miles in year 3.

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  1. 6 June, 15:06
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    The computation of the depreciation per units or bolts under the units-of-production method is shown below:

    = (Original cost - residual value) : (estimated miles)

    = ($35,000 - $5,000) : (100,000 miles)

    = ($30,000) : (100,000 miles)

    = $0.3 per mile

    For the first year, it would be

    = Miles in first year * depreciation per mile

    = 20,000 miles * $0.3

    = $6,000

    And, For the third year, it would be

    = Miles in third year * depreciation per mile

    = 24,000 miles * $0.3

    = $7,200
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