13 Revision of estimated useful life On January 1, 2014, Muoy Machining Co. purc

Question

13 Revision of estimated useful life

On January 1, 2014, Muoy Machining Co. purchased a compressor and related installation equipment for $65,100. The equipment had a three-year estimated life with a $3,900 salvage value. Straight-line depreciation was used. At the beginning of 2016, Muoy revised the expected life of the asset to four years rather than three years. The salvage value was revised to $2,900.

Compute the depreciation expense for each of the four years.

DEPRECIATION EXPENSE

2014

2015

2016

2017

On January 1, 2014, Muoy Machining Co. purchased a compressor and related installation equipment for $65,100. The equipment had a three-year estimated life with a $3,900 salvage value. Straight-line depreciation was used. At the beginning of 2016, Muoy revised the expected life of the asset to four years rather than three years. The salvage value was revised to $2,900.

Explanation / Answer

Below is the yarly depreciation calculated initially

beginning of 2016, Muoy revised the expected life of the asset to four years rather than three years. The salvage value was revised to $2,900 - So here the depreciation for first two year ie before revision will remain same as $ 20400

Now Book Value of equipment at the beginning of 2016 was

Cost - depreciation for two years

65100 - ( 20400 x 2 ) = 24300

Now we will calculate depreciation on the above book value for next two years as two years are past out of revised four years of estimated life - also we will consider the new salvage value

Depreciation calculation for year 2016 & 2017

Ans -

Cross Check -

And the above total equals the original cost of the equipment

a Cost of the equipment 65100 b Salvage Value 3,900 c Estimated life 3 d Depreciation per Year = ( a-b)/ C 20400

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.