Apex Fitness Club uses stralght-lIne depreclation for a machine costing $26,650,
ID: 2568023 • Letter: A
Question
Apex Fitness Club uses stralght-lIne depreclation for a machine costing $26,650, with an estimated four year life and a $2,750 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,300 salvage value. Required 1. Compute the machine's book value at the end of Its second year. 2. Compute the amount of depreclation for each of the final three years given the revised estimates. Complete this question by entering your answers in the tabs below Required 1Required 2 Compute the machine's book value at the end of its second year. Book Value at the End of Year 2 Cost Accumulated depreciation 2 years Book value at point of revision 26,650 26,650 Required2>Explanation / Answer
Solution:
1) Book Value of the machine at the end of its second year
Cost
$26,650
Accumulated Depreciation (Refer note 1)
$11,950
Book Value at point of revision
$14,700
Note 1 ---
Annual Depreciation using straight line method = (Cost of Machine – Salvage Value) / Estimated Useful Life
= (26,650 – 2,750) / 4
= $5,975
2 year’s depreciation = 5,975*2 = $11,950
Hence, the Accumulated Depreciation for 2 years = $11,950
2)
Revised Remaining Useful Life = 3 years
Book Value at point of Revision = $14,700
Revised Annual Depreciation = (Book Value at the end of Year 2 – Revised Salvage Value) / Revised Useful life
= (14,700 – 2,300) / 3
= $4,133.33
Year 3 Depreciation = $4,133.33
Year 4 Depreciation = $4,133.33
Year 5 Depreciation = $4,133.33
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Cost
$26,650
Accumulated Depreciation (Refer note 1)
$11,950
Book Value at point of revision
$14,700
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