Revision of Depreciation A warehouse with a cost of $886,600 has an estimated re

Question

Revision of Depreciation

A warehouse with a cost of $886,600 has an estimated residual value of $80,600, has an estimated useful life of 20 years, and is depreciated by the straight-line method.

a. Determine the amount of the annual depreciation.
$

b. Determine the book value after 13 full years of use.
$

c. Assuming that at the start of year 14 the remaining life is estimated to be 15 years and the residual value is estimated to be $70,200, determine the depreciation expense for each of the remaining 15 years.
$

Explanation / Answer

a) Depreciation under straight line method = (Cost - salvage) / Life = (886600 - 80600 ) / 20 years = 40,300 per year.

Annual depreciation = 40,300..................final answer

b) Book value after 13 full years of use = Cost - 13 years * 40,300 = 886600 - 523900 = 362700.....final answer

c) When ever the useful life of an asset is revised, existing unamortized cost after deducting for revised salvage value should be depreciated over revised estimated useful life.

As such depreciation = (362700 - 70200) / 15 years = 19500 ...........final answer

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