Question

Equipment was acquired on January 1, 2015, at a cost of $90,000. The equipment was originally estimated to have a salvage value of $5,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2018, using the straight-line method. On January 1, 2019, the estimated salvage value was revised to $6,000 and the useful life was revised to a total of 8 years. Determine the depreciation expense for 2019.

Answer 1

The depreciation expense for the year 2019 is $6250

Step-by-step explanation:

Firstly the straight line depreciation method is one of the most commonly used depreciation method by the companies where the depreciation expenses for a full accounting period is calculated by subtracting the total cost of the asset by the salvage value of the asset over its useful estimated life.

FORMULA FOR STRAIGHT LINE DEPRECIATION METHOD =

\frac{COST OF THE ASSET - SALVAGE VALUE}{USEFUL LIFE YEAR}

In this question the first step to do is to calculate the depreciation expenses for the asset from year 2015 to 2018, where cost of asset = $90,000

salvage value = $5,000

useful life year = 10

Calculating the depreciation expense for 1 year =

\frac{\$90,000 - \$5,000}{10} = \$8500

But we have to calculate the value for 4 years between 2015 - 2018

so, $8500 x 4 = $34,000

Now in 2019 the salvage value is revised and it is equal to $6,000, and useful life is 8 years.

So here we will subtract the $34,000 from total cost of the asset $90,000, and take out depreciation expenses for the year 2019 as,

Firstly the cost of the asset for the year 2019 would be $90,000 - $34,000,

which is equal to $56,000 and now putting this value in the formula,

\frac{\$56,000 - \$6,000}{8} = \$6250

Therefore the depreciation expense for the year 2019 is $6250