Question

On January 2, 2017, the Matthews Band acquires sound equipment for concert performances at a cost of $66,200. 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.

Answer 1

$25,680

Explanation:

For the computation of revised depreciation for both the second and third years first we need to follow some steps which are shown below:-

Depreciation cost = Cost - Salvage value

= $66,200 - $2,000

= $64,200

Annual depreciation under SLM method = Depreciable cost ÷ Useful life

= $64,200 ÷ 5

= $12,840

Book value of the equipment = Cost - Annual depreciation

= $66,200 - $12,840

= $53,360

Remaining depreciable cost = Book value at point of division - Salvage value

= $53,360 - $2,000

= $51,360

Annual depreciation for year 2 and year 3 = Remaining depriciable cost ÷ Remaining useful life

= $51,360 ÷ (3 - 1)

= $51,360 ÷ 2

= $25,680