A company purchased a tractor on January 1, 2021, for $65,000. The tractor's useful life is estimated to be 30,000 miles with an expected residual value of $5,000. If the company used the tractor 5,000 miles in 2021 and 3,000 miles in 2022, what is the balance for accumulated depreciation at the end of 2022 using the activity-based method

Accumulated depreciation at the end of year 2022 : $16,000

Explanation:

Activity based depreciation is whereby an asset is depreciated based on the asset's activity such as the number of hours worked or the number of units produced, during a particular period of time. Activity based depreciation per year is calculated as:

[ (Cost - Salvage value) x activity performed during the period] / Total estimated life activity of the asset

In 2021, the asset had an activity of 5000 miles. Depreciation for this year = [ (65000 - 5000) x 5000] / 30,000

= $10,000

In 2022, the asset had an activity of 3000 miles. Depreciation for this year = [ (65000 - 5000) x 3000] / 30000

= $6000

Accumulated depreciation at the end of year 22 : $10,000 + $6,000 = $16,000