Question

QS 8-7 Computing revised depreciation LO C2 On January 1, the Matthews Band pays $65,200 for sound equipment. The band estimates it will use this equipment for five years and after five years it can sell the equipment for $2,000. Matthews Band uses straight-line depreciation but realizes at the start of the second year that this equipment will last only a total of three years. The salvage value is not changed. Compute the revised depreciation for both the second and third years.

Answer 1

$25,280 per year

Step-by-step explanation:

The computation of the revised depreciation for both the second and third years is shown below:

But before that following calculations need to be done

Depreciation for year 1 = [Cost – Salvage Value] ÷Useful Life

= [$65,200 - 2,000] ÷ 5 Years

= $12,640

Now Book Value at point of revision is

= Cost - First year depreciation

= $65,200 - $12,640

= $52,560

Now

Remaining Depreciable Cost = Book Value at the point of revision - Salvage Value

= $52,560 – 2,000

= $50,560

And, finally Depreciation per year for Year 2 and 3 is

= Depreciable cost / Remaining useful life

= $50,560 ÷ 2 Year

= $25,280 per year