Reference no: EM132605334

Question - On October 1, 2017 Welch Auto Rentals purchases a new automobile for $30,000 to add to its fleet of rental cars. The automobiles are rented out on a short-term basis with rental fees calculated based on distance driven by the customer. Welch's policy is to sell and replace a car after the earlier of 3 years, or 75,000 kilometres. The average selling price of the used cars is $8,000. This particular car was driven 8,000 km in 2017, 39,000 km in 2018 and 21,000 km in 2019.

Instructions -

a) Calculate 2017 and 2018 depreciation expense under each of the following methods:

(i) Straight-line

(ii) Diminishing-balance using a 40% rate

(iii) Units-of-production

b) Which method will best match the estimated pattern in which the asset's economic benefits are expected to be consumed? Explain.