What should the depreciation expense recorded for this machine in Year 9 and wha

Question

What should the depreciation expense recorded for this machine in Year 9 and what is the asset's December 31, Year 9 net book value?

3. Nadir Company purchased a milling machine on January 3, Year 1 for $55,000. The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with $5,000 salvage value. At the beginning of Year 9, the company paid $15,000 to overhaul the machine. As a result of this expenditure, the company estimated that the remaining useful life of the machine was now 8 years with no salvage value. What should be the depreciation expense recorded for this machine in Year 9 and what is the asset's December 31, Year 9 net book value?

Explanation / Answer

Carrying value of the asset at the beginning of year 9 = 55000 - [(55000-5000)/10 x 8] = $15000

Overhauling expense in year 9 = $15000

Carrying value of asset after overhauling = 15000+15000 = $30000

Revised useful life after overhauling = 8 years

Revised Depreciation expense per year = 30000/8 = $3750

Depreciation expense in year 9 = $3750

Net book value at Dec 31, Year 9 = 30000 - 3750 = $26250

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