An asset was purchased for $111,000 on January 1, Year 1 and originally estimated to have a useful life of 8 years with a residual value of $13,500. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised amounts and straight-line method.

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23 April, 01:22

An asset was purchased for $111,000 on January 1, Year 1 and originally estimated to have a useful life of 8 years with a residual value of $13,500. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised amounts and straight-line method.

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Austin Willis · Answer 1

3rd year depreciation expense = $21156.25

Explanation:

Annual Depreciation [Dep pa] = [Cost of Asset - Scrap Value] / Useful Years

At beginning:

Asset Cost = 111000; Scrap Value = 13500; Useful Years = 8

Dep pa = [111000 - 13500] / 8

= 97500 / 8 → = 12187.5

Depreciation for 2 years : Dep pa x 2 → = 12187.5 x 2 → = 24375

Remaining asset value at end of 2 years = Cost - total depreciation until now

= 111000 - 24375 → = 86625

At beginning of 3rd year:

Remaining Cost = 86625; Scrap Value = 2000; Useful Years = 4

Dep pa = [ 86625 - 2000] / 4

= 84625 / 4 → = 21156.25