Question

On January 1 2010 the good ale beer corporation purchased equipment at a cost of $130,000. It was expected to have a useful life of eight years and no savage value. The straight line depreciation method was used. In January 2012 the estimate is salvage value was revised for $0 to 8400. How much depreciation should good ale beer corporation record 2012

Answer 1

Depreciation each year under straight line method

= (Purchase cost – Salvage value) / Useful life

= ($130,000 – $0) / 8

= $16,250

So, accumulated depreciation for 2010 and 2011

= Depreciation per year x Number of years

= $16,250 x 2

= $32,500

Written down value at the beginning of 2012

= Purchased cost – Accumulated depreciation

= $130,000 - $32,500

= $97,500

Remaining useful life

= Total life – Expired life

= 8 – 2

= 6

Revised Depreciation

= (Written down value at the beginning of 2012 – Salvage value) / Remaining useful life

= ($97,500 - $8,400) / 6

= $14,850