Answer:
$1,125
Explanation:
Given that,
Cost of machine = $20,000
Estimated salvage value = $5,000
Estimated useful life = 8 years
Depreciation refers to the reduction in the value of the fixed assets of a particular company with the passage of time.
Here, we are using the straight line method,
Annual depreciation is as follows:
= (Cost of machine - Salvage value) ÷ Estimated useful years
= ($20,000 - $5,000) ÷ 8
= $1,875
Depreciation amount for the year 2011 = $1,875
Depreciation amount for the year 2012 = $1,875
Therefore, the book value of the machine at the beginning of January 1, 2013 is as follows:
= Cost of machine - Depreciation amount for the year 2011 - Depreciation amount for the year 2012
= $20,000 - $1,875 - $1,875
= $16,250
Now, the Santayana decides the machine will last 12 years from the date of purchase and we have already deduct the depreciation for the 2 years. So, we need to consider only 10 years for calculating the new annual depreciation.
Salvage value remains the same.
New annual depreciation:
= (Book value at the beginning of 2013 - Salvage value) ÷ Useful life
= ($16,250 - $5,000) ÷ 10
= $11,250 ÷ 10
= $1,125
