Question

# Equipment was acquired on January 1, 2010, at a cost of ¥2,000,000. The equipment was originally...

Equipment was acquired on January 1, 2010, at a cost of ¥2,000,000. The equipment was originally estimated to have a residual value of ¥100,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2013, using the straight-line method. On January 1, 2014, the estimated residual value was revised to ¥140,000 and the useful life was revised to a total of 8 years.

Instructions

Determine the Depreciation Expense for 2014.

Ex. 274

Equipment was acquired on January 1, 2010, at a cost of ¥2,000,000. The equipment was originally estimated to have a residual value of ¥100,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2013, using the straight-line method. On January 1, 2014, the estimated residual value was revised to ¥140,000 and the useful life was revised to a total of 8 years.

Instructions

Determine the Depreciation Expense for 2014.

Depreciation Expense for 2014 = ¥275,000

Explanation:

Cost of Equipment = ¥2,000,000

Estimated residual value = ¥100,000

Estimated Life = 10 years

Annual Depreciation under Straight-line Method = (Cost – Residual Value)/Estimated Life

=(¥2,000,000-¥100,000)/10 = ¥190,000

Annual Depreciation = ¥190,000

Depreciation for 4 years has been recorded (2010 to 2013) = 4 x ¥190,000 = ¥760,000

Book Value of Equipment as on January 1, 2014 = ¥2,000,000 - ¥760,000 = ¥1,240,000

Revised Residual Value = ¥140,000

Revised Useful Life = Total 8 years

Revised Annual Depreciation = (Book Value – Revised Residual Value)/Estimated Useful Life

= (¥1,240,000 - ¥140,000)/(8-4)**

= ¥275,000

** 4 years of useful life is completed already and therefore it needs to be deducted from total useful life.

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