Question

A company purchased an asset on January 1, 2015, for $10,000. The asset was expected to have a ten-year life and a $1,000 salvage value. The company uses the straight-line method of depreciation. On January 1, 2017, the company determines that the asset will last only five more years.

Calculate the amount of depreciation for 2017.

Answer 1

The amount of depreciation for 2017 after adjusting the asset's remaining life to 5 years, taking into account prior depreciation, is $1,440.

Step-by-step explanation:

The subject of the problem is the calculation of depreciation for an asset using the straight-line method. Initially, the asset had a 10-year life and was adjusted to a 5-year remaining life after two years of depreciation (as of January 1, 2015).

The original depreciation per year was (($10,000 - $1,000) / 10) = $900. By January 1, 2017, the asset had been depreciated for two years, so it had accumulated depreciation of $1,800. The book value as of January 1, 2017, was ($10,000 - $1,800) = $8,200. With the new estimation of 5 more years of service life and a $1,000 salvage value, the new depreciation expense per year is (($8,200 - $1,000) / 5) = $1,440.

The amount of depreciation for 2017 would therefore be $1,440.