Question

A delivery truck was purchased for $60,000 and is expected to be used for 5 years and 100,000 miles. The truck’s residual value is $10,000. By the end of the first year, the truck has been driven 16,000 miles. What is the depreciation expense in the first year using activity-based depreciation?

Answer 1

Cost of Truck = $60,000

Estimated use = 100,000 miles

Residual value = $10,000

Depreciation per mile = ( Cost of Truck- Residual value)/ Estimated use

= ( 60,000-10,000)/100,000

= 50,000/100,000

= $0.5

Miles driven in first year = 16,000

Depreciation expense for first year = Miles driven in first year x Depreciation per mile

= 16,000 x 0.5

= $8,000

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