On 1/1/2015, Jason Company purchased a forklift for $155,000. The forklift has a

Question

On 1/1/2015, Jason Company purchased a forklift for $155,000. The forklift has a 5 year useful life and a residual value of $15,000. Jason Company chose to use the straight-line depreciation method for the forklift. Calculate depreciation expense, accumulated depreciation and book value for the years ended 12/31/2015 and 12/31/2016. Assume that Jason purchased the forklift on 7/1/2015 instead of 1/1/2015, calculate depreciation expense, accumulated depreciation and book value for the year ended 12/31/2015, 12/31/2016. On 1/1/2017, Jason had to overhaul a truck engine at a cost of $10,000. Before the overhaul, the truck had a remaining useful life of 6 years and a book value of 85,000. The overhaul increased the life of the truck by 3 years. The truck's expected residual value at the end of its useful life is 5,000. Calculate depreciation expense for the year ended 12/31/2017.

Explanation / Answer

Ans 1 According to Straight Line method od=f depreciation, per year depreciation will be 155000-15000/5 28000 per year Book value at the end of year 1 is 155000-28000=127000 Book value at the end of year 2 is 127000-28000=99000 Date Depreciation Expense Accumulated Depreciation Book Value 12/31/2015 28000 28000 127000 12/31/2016 28000 56000 99000 (28000+28000=56000) Ans 2 If forklift is purchased on 1 July than in 1 year half year depreciation will be taken=28000/2=14000 Book value at the end of year 1 is 155000-14000=141000 Book value at the end of year 2 is 141000-28000=113000 Date Depreciation Expense Accumulated Depreciation Book Value 12/31/2015 14000 14000 141000 12/31/2016 28000 42000 113000 Ans 3 There ha been change in estimate so depreciation will be recalulated prospectively i.e for Year 3 and coming years Book value+Expenditure incurred to increase the life of the asset-Salvage Value/Years (85000+10000-5000)/(6+3) 10000 per year for 9 years

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