Average Cost/Unitâ€”1,000,000 ties at $13.00
Average Cost/Unitâ€”800,000 rails at $25.00
The average cost per unit represents costs of the assets over their life. Railway Company A expects to replace 1/20 of the ties at a current cost per unit of $20.00 and 1/40 of the rails at a current cost of $50 during 2011.
Perform the following calculations using the provided template (see the â€œGroup and Composite Depreciation Templateâ€ attachment below):
A. Calculate the depreciation expense for the year using the composite method for 2010 and 2011.
B. Management is considering depreciating the ties using the group method for 2011. Calculate the depreciation expense for the year on the ties using the group method and compute the group depreciation rate for 2011.