Canliss Mining uses the replacement method to determine depreciation on its offi

Question

Canliss Mining uses the replacement method to determine depreciation on its office equipment. During 2016, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages four years and no salvage value is anticipated. In 2018, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2018 depreciation of:

Multiple Choice

$4,400.

None of these answer choices are correct.

$3,500.

$5,400.

Explanation / Answer

Depreciation as per replacement method = Purchase cost of new asset - Proceeds from sales of asset retired

Depreciation for 2018 = $6,000 -  $600 = $5,400 ( ie option d)

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