Question

On January 1, 2008, the Villareal Mexican Bakery ledger shows Equipment $40,000 and Accumulated Depreciation $9,000. The depreciation resulted from using the straight-line method with a useful life of ten years and salvage value of $4,000. On this date, the company concluded that the equipment has a remaining useful life of only five years with the same salvage value.Compute the revised annual depreciation

Answer 1

The revised annual depreciation for the equipment is calculated by subtracting the accumulated depreciation and the salvage value from the original cost, and then dividing by the new remaining useful life. The revised annual depreciation for Villareal Mexican Bakery's equipment is $5,400.

Step-by-step explanation:

To compute the revised annual depreciation for the equipment of Villareal Mexican Bakery, we first need to subtract the accumulated depreciation from the original cost of the equipment to determine the book value of the equipment as of January 1, 2008. The original cost of the equipment is $40,000 with accumulated depreciation of $9,000, so the book value is $40,000 - $9,000 = $31,000. Considering the same salvage value of $4,000, we now have a depreciable base of $31,000 - $4,000 = $27,000. Since the remaining useful life of the equipment is now only five years, we divide the depreciable base by 5 to find the revised annual depreciation.

Therefore, the revised annual depreciation amount will be $27,000 / 5 years = $5,400 per year.