Question

On January 2, 2017, the Matthews Band acquires sound equipment for concert performances at a cost of $67,800. The band estimates it will use this equipment for five years. It estimates that 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 due to concert bookings beyond expectations, this equipment will last only a total of three years. The salvage value remains unchanged. Compute the revised depreciation for both the second and third years. Book value at point of revision Remaining depreciable cost Depreciation per year for years 2 and 3

Answer 1

Book value at point of revision = $54,640

Remaining depreciable cost = $54,640

Depreciation per year for years 2 and 3 = $28,320

Step-by-step explanation:

Depreciation expense using the straight line depreciation method = ( Cost of asset - Salvage value) / useful life

Depreciation expense before the revision = ($67,800 - $2000) / 5 = $13,160

Book value at point of revision = $67,800 - $13,160 = $54,640.

Depreciation expense after the revision = ($54,640 - $2000) / 2 = $28,320