Revision of Depreciation Equipment with a cost of $379,700 has an estimated resi

Question

Revision of Depreciation Equipment with a cost of $379,700 has an estimated residual value of $40,700, has an estimated useful life of 15 years, and is depreciated by the straight-line method. a. Determine the amount of the annual depreciation. $ b. Determine the book value after 5 full years of use. $ c. Assuming that at the start of the year 6 the remaining life is estimated to be 14 years and the residual value is estimated to be $39,900, determine the depreciation expense for each of the remaining 14 years. $

Explanation / Answer

a. Annual depreciation: $22600

Depreciable value = Cost - Residual value = $379700 - $40700 = $339000

Annual depreciation = Depreciable value/Estimated useful life = $339000/15 = $22600

b. Book value after 5 full years of use: $266700

Depreciation for 5 years = $22600 x 5 = $113000

Book value after 5 years = $379700 - $113000 = $266700

c. Depreciation expense for each of the remaining 14 years: $16200

Revised remaining depreciable cost = $266700 - $39900 = $226800

Revised remining useful life = 14 years

Depreciation expense = $226800/14 = $16200

Note: The change in the residual value and estimated useful life are changes in accounting estimates and hence are accounted for prospectively.

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