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6 February, 11:02

X Company had been depreciating a machine with an original cost of $125,000 and a salvage value of $15,000 over its estimated useful life of 10 years using straight-line depreciation. At the beginning of the seventh year, X Company determined that the machine will actually remain in use for a total of 12 years and will have a salvage value of $5,000. How much depreciation will X Company recognize in the seventh year?

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  1. 6 February, 13:47
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    The company will recognize 4,500 for depreciation expense related to this machine.

    Explanation:

    First step, calculate the book value at the beginning of the seventh year

    purchase - salvage value = amount subject to depreciation

    125,000 - 15,000 = 110,000 depreciable amount

    depreciable amount / useful life = depreciation per year

    110,000 / 10 = 11,000 per year

    It was depreciate for 6 years

    11,000 * 6 = 66,000 accumulated depreciation

    book value = purchase - accumulated depreciation

    125,000 - 66,000 = 59,000

    Now, this will be depreciate over 12 years with a salvage value of 5,000

    purchase - salvage value = amount subject to depreciation

    59,000 - 5,000 = 54,000

    depreciable amount / useful life = depreciation per year

    54,000/12 = 4,500 depreciation per year

    The company will recognize 4,500 for depreciation expense related to this machine.
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