Question

When originally purchased, a vehicle costing $24,660 had an estimated useful life of 8 years and an estimated salvage value of $2,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

Answer 1

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Cost of vehicle = 24,660

Salvage value = 2500

Useful life = 8 years

Depreciation = 24,660 - 2500 / 8 =2,770

Book value after 4 years

=24,660 - (2,770 x 4)

=24,660 - 11,080

=13,580

Now the useful is changed from 8 years to 6 years. So the remaining book value will be written off in remaining useful life i.e. 2 years.

So the depreciation for year 5 will be

= 13,580 - 2,500 / 2

= 5,540

So the depreciation for year 5 will be $5,540.