Question:
Railway Company A has 1,000 miles of get that extend from Location A to Location B. Railway Company A adopted the composite method of depreciation for its railroad infrastructure that includes ties and track. The assets on the starting of 2010 balance sheet (prepared at the end of 2009) currently are as follows:
Ties:
Original Cost-$13,000,000
Residual Value-$500,000
Depreciable Cost-$12,500,000
Estimated Life-20
Average Cost/Unit-1,000,000 ties at $13.00
Rails:
Original Cost-$20,000,000
Residual Value-$1,000,000
Depreciable Cost-$19,000,000
Estimated Life-40
Average Cost/Unit-800,000 rails at $25.00
The average cost per unit shows 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.