Answer:
The amount of depreciation expense is $3,871.86.
Explanation:
Sum-of-the-years digits method is determined by: (Remaining useful life/Sum of the years' digits) x Depreciable cost.
Depreciable cost = Cost - Salvage value
Depreciable cost = $50,000 + $2,500 - $5,000 = $47,500
Insurance premium is usually for a period of 1 year. This will be treated as prepayment instead of being added to the cost of the equipment. Shipping cost is added based on the recommendation of IAS 16 Property, Plant and Equipment.
Depreciation expense = 6/21 x $47,500 = $13,571.43 for Year 2001
Depreciation expense = 5/21 x $47,500 = $11,309.52 for Year 2002
As at December 2002, the accumulated depreciation will be $13,571.43 + $11,309.52 = $24,880.95; so, net book value is $52,500 - $24,880.95 = $27,619.05.
Change in estimate: 8/55 x $27,619.05 - $1,000 = $3,871.86.
55 = 10+9+8+7+6+5+4+3+2+1
