Question

Novak Corp. purchased a piece of equipment for $52,000. It estimated a 8-year life and $2,080 salvage value. At the end of year 4 (before the depreciation adjustment), it estimated the new total life to be 10 years and the new salvage value to be $4,160. Compute the revised depreciation. Company uses straight-line depreciation method. (Round answer to 0 decimal places, e.g. 125.)

Answer 1

$2,288 per year

Step-by-step explanation:

We can calculate the revised depreciation to be;

• Annual depreciation charge of equipment using initial estimates

Depreciation charge = (Cost of asset - Salvage value) / Useful life

= ($52,000 - $2,080) / 8 years

= $6,240 per year

• Calculate the net book value of equipment at the end of year 4

Cost of asset

$52,000

Less: Accumulated depreciation of 4 years ($6,240 × 4)

($24,960)

Net book value

$27,040

• Calculate revised depreciation charge using the revised useful life

Revised depreciation charge = (Net book value of asset at the end of year 4 - New salvage value) / Revised useful life

= ($27,040 - $4,160) / 10 years

= $2,288 per year