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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