Question

A company used straight-line depreciation for an item of equipment that cost $18,800, had a salvage value of $5,000 and a six-year useful life. after depreciating the asset for three complete years, the salvage value was reduced to $1,880 but its total useful life remained the same. determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

Answer 1

$3,340 per year The amount to depreciate per year is defined by the formula D = (CV - SV)/L where CV = Current value SV = Salvage value L = Useful life So with the initial values of $18,800 and $5,000 with an expected life of 6 years, we get: D = ($18,800 - $5,000)/6 D = $13,800/6 D = $2,300 So for the 1st 3 years, $2,300 was depreciated for each year, resulting in a new current value of $18,800 - $2,300 * 3 = $18,800 - $6,900 = $11,900. We now have a new salvage value of $1,880 and an expected life of 3 more years. So: D = (CV - SV)/L D = ($11,900 - $1,880)/3 D = $10,020/3 D = $3,340 So for the remaining 3 years of life of the equipment, the amount of depreciation to be charged is $3,340 per year.