Question

Bought a piece of equipment costing $110,000, with a salvage value of $10,000 and a useful life of 10 years.  After 5 years, it was discovered that the salvage value will be $5,000 and the remaining useful life is only 2 years.  What is the new depreciation using SL method?

Answer 1

Depreciation under Straight-line method = (Cost - Salvage value) / Estimated useful life

= ($110,000 - $10,000) / 10

= $10,000

Accumulated depreciation for 5 years = $10,000 * 5 = $50,000

Book value after 5 years = Cost - Accumulated depreciation

= $110,000 - $50,000

= $60,000

Revised remaining useful life = 2 years

Revised salvage value = $5,000

Depreciation = (Book value - Revised salvage value) / Revised remaining useful life

= ($60,000 - $5,000) / 2

= $27,500