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14 September, 03:15

Coronado's Quik Shop bought machinery for $90000 on January 1, 2017. Coronado estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2018, Coronado decides that the business will use the machinery for a total of 6 years. What is the revised depreciation expense for 2018?

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  1. 14 September, 03:33
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    Revised depreciation expense for 2018 = $14,400

    Explanation:

    Cost of machinery = $90,000

    Salvage value = $0

    Expected life = 5 years

    Date of purchase of machinery = 1 January, 2017

    Depreciation for the year 2017 = ($90,000 - $0) / 5 = $18,000 per year under straight line method.

    Book value at end of year 1 = $90,000 - $18,000 = $72,000

    Now on 1 Jan 2018 company decides to use the machinery for total of 6 years

    That is time period left = 6 years - Already used 1 year = 5 years

    Depreciation = $72,000/5 years = $14,400 per year as life from now is 5 years for which depreciation will be as follows.

    Note: No reverse adjustment is possible in previous year financial statements.

    Revised depreciation expense for 2018 = $14,400
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