Arboretum Ltd. has been depreciating its production equipment on a straight-line

Question

Arboretum Ltd. has been depreciating its production equipment on a straight-line basis over 10 years, taking a full year’s depreciation in the year of acquisition and assuming no residual value at the end of the equipment’s life. The company had invested $800,000 in the equipment at the beginning of 20X1. At the beginning of 20X4, the company decided to adjust the equipment’s total useful life from 10 years down to eight, but with an estimated residual value amounting to 10% of the equipment’s original cost rather than zero.

Determine the amount of depreciation expense to be shown for 20X4.

Determine the comparative amount for 20X3.

Explanation / Answer

Determine the amount of depreciation expense to be shown for 20X4.

Depreciation expense for 20X4 = (800000-240000-80000)/5 = 96000

Determine the comparative amount for 20X3.

Depreciation expense for 20X3 = 800000/10 = 80000

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