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21 February, 21:37

A manufacturing firm purchased used equipment for $135,000. The original owners estimated that the residual value of the equipment was $10,000. The carrying amount of the equipment was $120,000 when ownership transferred. The new owners estimate that the expected remaining useful life of the equipment was 10 years, with a salvage value of $15,000. What amount represents the depreciable base used by the new owners?

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  1. 21 February, 22:58
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    basis: 120,000

    expense per year: 12,000

    Explanation:

    depreciable basis or depreciable base:

    cost - salvage value

    The cost, will be the amount the new owners purchased the machine. Wich is 135,000 dollars

    Then to calcualte the amount subject to depreciation we will subtract from cost, the salvage value. Also, this will be the salvage value estimated from the ne owners: 15,000

    So, we calculate:

    135,000 - 15,000 = 120,000

    then we divide by the useful life of the equipment to get the depreciation expense per year

    120,000 / 10 = 12,000
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