Cutting Edge Plc purchased a state of the art hedge trimming tractor for a contract to maintain country roadside hedges for a local council.The manufacturer of the tractor stated in marketing material that the tractor is able to trim 700 000 kilometres of hedges in its operating life.Cutting Edge believes that the particularly woody type of hedges they have been contracted to maintain means that the life of the tractor is likely to be 15% less than the manufacturer specified.The tractor cost €100 000 and is expected to have a salvage value at the end of its useful life of €30 000.The tractor trimmed 60 000 kilometres this period.What is the depreciation charge this period (rounded to the nearest euro)?

Question

Quizplus · Accepted Answer

The expected useful life of the tractor is 85% of 700,000 km, which is 595,000 km. The depreciation per km is (€100,000 - €30,000) / 595,000 km = €0.1176/km. For 60,000 km, the depreciation is 60,000 km * €0.1176/km = €7,058.82, rounded to €7,059.

Cutting Edge Plc Purchased a State of the Art Hedge