On January 1, the Matthews Band pays $65,800 for sound equipment. The band estimates it will use this equipment for four years and after four 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 this equipment will last only a total of three years. The salvage value is not changed.

Compute the revised depreciation for both the second and third years.

Question

Ali Hammond

Business

13 December, 07:36

On January 1, the Matthews Band pays $65,800 for sound equipment. The band estimates it will use this equipment for four years and after four 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 this equipment will last only a total of three years. The salvage value is not changed.

Compute the revised depreciation for both the second and third years.

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Answers (1)

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Zion Ritter · Answer 1

The revised depreciation for both the second and third years is $23,925.

Explanation:

Using a straight-line method (method of allocating the cost of an asset over its useful life after considering the salvage value due to wear and tear), the depreciation is calculated as: (Cost - Residual Value) / Useful life

Depreciation = ($65,800 - $2,000) / 4 years

Depreciation = $15,950 yearly

The accumulated depreciation for the first year will still be will be $15,950, while the net book value (cost - accumulated depreciation) of the equipment is $65,800 - $15,950 = $49,850.

New depreciation from the second year onward is ($49,850 - $2,000) / 2 years = $23,925 yearly.