Question

A plant asset was purchased on January 1 for $55,000 with an estimated salvage value of $5,000 at the end of its useful life. The current year's depreciation expense is $5,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $25,000. The remaining useful life of the plant asset is

Answer 1

Answer:

5 years of useful life

Explanation:

First, we need to know the value we are going to depreciate: this is calculated by subtracting from the total asset value, the salvage value. So, the value we are going to depreciate is $50,000.

If the depreciation expense is $5000 calculated on the straight line basis, then the depreciation expense all years is the same, $5000. To know the useful life of the asset we must divide the value to depreciate over the depreciation expense. That gives us 10 years.

Finally, to know the remaining useful life we need to do a simple table in which we have the depreciation expense each year and we have the accumulated depreciation. For example, the accumulated depreciation in year 1 is $5000, in year 2 is $10,000, year 3 is $15,000 and so on, until we get to $25,000, which is the accumulated depreciation of the year 5. Then if the useful life of the asset is 10 years, the remaining useful life is 5 years.