Question

Equipment with a cost of \$423,100 has an estimated residual value of \$48,700, has an estimated...

Equipment with a cost of \$423,100 has an estimated residual value of \$48,700, has an estimated useful life of 32 years, and is depreciated by the straight-line method.

a. Determine the amount of the annual depreciation.
\$

b. Determine the book value after 19 full years of use.
\$

c. Assuming that at the start of the year 20 the remaining life is estimated to be 20 years and the residual value is estimated to be \$40,800, determine the depreciation expense for each of the remaining 20 years.
\$

a. The amount of the annual depreciation by the straight-line method = (Cost - residual value) / useful life

= ( 423100-48700)/32

= \$ 11,700 per year

Answer = \$ 11,700 per year

b. Depreciation for 19 years =annual depreciation * number of years

= \$ 11,700 per year * 19 years

= \$ 222,300

Book value after 19 years = cost - Depreciation for 19 years

=423100- 222,300

= \$ 200,800

Answer : \$ 200,800

c. Annual Depreciation = (Book Value as at the end of 19 years - revised residual Value) / revised useful life

= (200,800-40800)/20

= \$ 8,000 per year

Answer : \$ 8,000 per year

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