Question

A machine with a cost of $90 000 has an estimated residual value of $30 000 and an estimated life of four years or 20 000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the second full year, during which the machine was used 5 500 hours?

Answer 1

Annual depreciation=(Cost-Residual value)/Useful Life

                                  =($90,000-$30,000)/20,000

                                   =$3/hour

Depreciation for 2nd year=$3*5,500 hours

                                           =$16,500.

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