Question

company used straight-line depreciation for an item of equipment that cost $20,300, had a salvage value of $5,600 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $2,030 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:

Answer 1

Answer:

$3,640

Explanation:

Straight line method of depreciation, measures same amount of depreciation over the useful life of the asset.

Depreciation Charge = Cost - Salvage Value / Number of Useful Life

Depreciation for the each of the First 3 years :

Depreciation Charge = Cost - Salvage Value / Number of Useful Life

                                   = ($20,300 - $5,600) / 6

                                   = $2,450

Accumulated Depreciation = $2,450 × 3

                                             = $7,350

New Depreciation Charge After 3 years:

Depreciation Charge = (Cost - Sum of Previous Depreciation Charges - New Salvage Value) / Number of Remaining Useful Life

                                   = ($20,300 - $7,350 - $2,030) / 3

                                   = $3,640

Therefore, the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life would be $3,640 .