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16 November, 09:51

A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

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  1. 16 November, 09:52
    0
    The amount of depreciation to be charged against the equipment during each of the remaining years of its useful life=$2,400

    Explanation:

    The initial depreciable cost is expressed as;

    initial depreciable cost=acquisition cost-initial salvage value

    where;

    acquisition cost=$12,000

    initial salvage value=$2,000

    replacing;

    initial depreciable cost=12,000-2000=$10,000

    initial annual depreciable expense=initial depreciable cost/useful life=10,000/5=$2,000

    Accumulated depreciation for the three years=annual depreciation*utilized useful life=2,000*3=$6,000

    Determine the new depreciable cost=net book value at end of year 3-new salvage value

    where;

    net book value at end of year 3 = acquisition cost-accumulated depreciation at end of year 3

    net book value at end of year 3 = (12,000-6,000) = $6,000

    new salvage value=$1,200

    replacing;

    new depreciable cost=net book value at end of year 3-new salvage value

    new depreciable cost=6,000-1,200=$4,800

    new annual depreciation expense=4,800/2=$2,400

    The amount of depreciation to be charged against the equipment during each of the remaining years of its useful life=$2,400
  2. 16 November, 10:02
    0
    Answer: $2400

    Explanation:

    The straight line depreciation calculates the depreciation expense as cost of asset less salvage value, the value derived is then divided by useful life

    Depreciation expense = (Cost of asset - Salvage value) / useful life

    Cost of asset-$12,000

    Useful life - 5 years

    Initial salvage value - $2000

    Salvage value after 3 years - $1200

    Depreciation expense for the first 3 years -

    $12000 - $2,000 = $10,000

    Accumulated depreciation = (3/5) * 10,000=$6,000

    Net book value at the beginning of the 5th year = $6,000-$1200 = $4800

    Depreciation expense for the 4th and 5th years = $4800 : 2 = $2400
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