A plant asset was purchased on January 1 for $54000 with an estimated salvage value of $6000 at the end of its useful life. The current year's depreciation expense is $4000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $16000. The remaining useful life of the plant asset is?

Question

Dalia Gill

Business

21 September, 04:36

A plant asset was purchased on January 1 for $54000 with an estimated salvage value of $6000 at the end of its useful life. The current year's depreciation expense is $4000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $16000. The remaining useful life of the plant asset is?

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Frances Frazier · Answer 1

Depreciation per annum = Cost - Salvage value/N

$4,000 = $54,000 - $6,000/N

4,000N = 48,000

N = 12 years

The estimated useful year of the asset = 12 years

The accumulated depreciation is $16,000

This implies that depreciation of $4,000 has been charged for 4 years

Thus, the remaining useful life of the asset is 12 years - 4 years = 8 years

Explanation:

In this scenario, there is need to calculate the estimated useful life of the asset based on straight line depreciation formula. In this case, the estimated useful life becomes the subject of the formula.

We also need to determine the number of years depreciation has been charged. Since the accumulated depreciation is $16,000, it means depreciation has been charged for 4 years based on annual depreciation charge of $4,000. The remaining useful life is the difference between the estimated useful life (12 years) and number of years depreciation has been charged (4 years).