A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life

the amount of depreciation to be charged against the machine during each of the remaining years of its useful life is $2666.67

Explanation:

Straight Line Depreciation Charges the same amount for depreciation on the PPE item.

Depreciation Expense = (Cost - Salvage Value) / Useful Life

Year 1

Depreciation Expense = ($12,000 - $2,000) / 5

= $ 2,000

Year 2

Depreciation Expense = $ 2,000

Year 3

Depreciation Expense = $ 2,000

Year 4

1. Adjust The Depreciable Amount

Depreciable Amount = Cost - Accumulated Depreciation to date - New Salvage Value

= $12,000 - $ 2,000 - $ 2,000

= $ 8,000

2. Adjust the Remaining Useful Life staring Beginning of Year 4

Remaining Useful Life before adjustments is 2

Addition to 6 years is 1

Total useful life Remaining is 3

Depreciation Expense = Revised Depreciable Amount / Remaining Useful Life

= $ 8,000 / 3

= $2666.67