Question

The price of a corporate limo purchased by Bob's Limos was $42,900. Its salvage value after operating for 90,000 miles is $5,577. Based on the given annual usage, prepare a UOP (Units-of-Production) depreciation schedule, then enter the annual depreciation for year 5 as your answer. (Round all amounts to the nearest cent)

Answer 1

At his particular example, we will use the straight-line method of calculating depreciation. We will also assume that the limo has a useful life of six (6 years) because as per The National Household Travel Survey a car in the US is driven at an average of 15,000 miles per year so useful life is (90,000/15000=6

Salvage value is the estimated value that Bob is to be paid when the limo is sold at the end of its useful life (6 years). The salvage value of $5,577 is subtracted from the cost of the limo ($42,900) then divided by the number of years of useful life (6) to get the annual depreciation of $6.220.50 straight from the first year to the fifth year.