Question

The residual value is NOT directly used for the calculation of depreciation expense under which method?

a. interest capitalisation method.
b. units-of-activity method.
c. straight-line method.
d. diminishing balance method.

Answer 1

The residual value is not directly used in the units-of-activity method of depreciation, which focuses on actual asset usage.

Step-by-step explanation:

The residual value is not directly used in the calculation of depreciation expense under the units-of-activity method. This method calculates depreciation based on the actual usage or productivity of the asset rather than the passage of time. The depreciation expense per unit is computed by subtracting the residual value from the cost of the asset and then dividing by the total estimated units of production. However, the calculation emphasizes on the number of units produced or used, not on the asset's residual value itself as the straight-line or diminishing balance method would.