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27 January, 06:37

An asset was purchased for $111,000 on January 1, Year 1 and originally estimated to have a useful life of 8 years with a residual value of $13,500. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised amounts and straight-line method.

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  1. 27 January, 09:12
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    3rd year depreciation expense = $21156.25

    Explanation:

    Annual Depreciation [Dep pa] = [Cost of Asset - Scrap Value] / Useful Years

    At beginning:

    Asset Cost = 111000; Scrap Value = 13500; Useful Years = 8

    Dep pa = [111000 - 13500] / 8

    = 97500 / 8 → = 12187.5

    Depreciation for 2 years : Dep pa x 2 → = 12187.5 x 2 → = 24375

    Remaining asset value at end of 2 years = Cost - total depreciation until now

    = 111000 - 24375 → = 86625

    At beginning of 3rd year:

    Remaining Cost = 86625; Scrap Value = 2000; Useful Years = 4

    Dep pa = [ 86625 - 2000] / 4

    = 84625 / 4 → = 21156.25
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