Question

A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life

Answer 1

the amount of depreciation to be charged against the machine during each of the remaining years of its useful life is $2666.67

Step-by-step explanation:

Straight Line Depreciation Charges the same amount for depreciation on the PPE item.

Depreciation Expense = (Cost - Salvage Value) / Useful Life

Year 1

Depreciation Expense = ($12,000 - $2,000) / 5

= $ 2,000

Year 2

Depreciation Expense = $ 2,000

Year 3

Depreciation Expense = $ 2,000

Year 4

1. Adjust The Depreciable Amount

Depreciable Amount = Cost - Accumulated Depreciation to date - New Salvage Value

= $12,000 - $ 2,000 - $ 2,000

= $ 8,000

2. Adjust the Remaining Useful Life staring Beginning of Year 4

Remaining Useful Life before adjustments is 2

Addition to 6 years is 1

Total useful life Remaining is 3

Depreciation Expense = Revised Depreciable Amount / Remaining Useful Life

= $ 8,000 /3

= $2666.67