Question

Cheyenne Corp. purchased a piece of equipment for $58,800. It estimated a 9-year life and $3,400 salvage value. At the end of year 3 (before the depreciation adjustment), it estimated the new total life to be 11 years and the new salvage value to be $5,200.Compute the revised depreciation. Company uses straight-line depreciation method.

Answer 1

the revised depreciation is $ 3,753

Step-by-step explanation:

Straight Line Method of Depreciation charges the same amount of depreciation over the useful life of the asset.

Depreciation Charge (Straight line) = (Cost - Salvage Value) / Useful life

Year 1

Depreciation Charge = ( $58,800 - $3,400) / 9 years

= $6,156

Year 2

Depreciation Charge = $6,156

Year 3

Make the adjustment as if the adjustment happened at the beginning of the year

Make the following changes

(1) Adjast the Depreciable Amount (numerator)

(2) Adjast the Useful life (denominator) to 11 years

Depreciation Charge = (Cost - Previous Depreciation Charges - New Residual Value) / Revised Number of Useful life

Depreciation Charge = ($58,800 - $6,156 - $6,156 - $5,200)/ 11 years

= $ 41,288/ 11 years

= $ 3,753