Question

A car has been purchased for £5200 and is estimated to have an expected life driving 200,000

miles. At the end of that time its value is estimated to be £200. If the units-of-production
method is used to depreciate the car,
a) What is depreciation cost per mile?
b) What will be book value of the car after it has driven 55000 miles?

Answer 1

a) 0.025£ b)3825£

Explanation:

a) 5200-200=5000 - of the value will be lost after reaching the milleage of 200000 miles

200000-5000

1-x

200000=5000/x

x=5000/200000= 5/200=1/40=0.025£- the depreciation cost per mile

b)0.025*55000= 1375- the decreasing of the price

5200-1375=3825£- the book value of the car after it has driven 55000 miles