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When originally purchased, a vehicle had an estimated useful life of 12 years. The vehicle cost...

When originally purchased, a vehicle had an estimated useful life of 12 years. The vehicle cost $39,000 and its estimated residual value is $3,000. After 3 years of straight-line depreciation, the asset’s total estimated useful life was revised from 12 years to 8 years and there was no change in the estimated residual value. The Depreciation Expense in year 4 is:

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Answer #1

Solution:

Straight line depreciation upto Year 3 = (Cost - Salvage Value)* 3/Useful Life = ($39000 - $3000) * 3/12 = $9,000

Carrying Value of Vehicle after 3 years = Cost - Straight line depreciation upto Year 3 = $39000 - $9000 = $30,000

Now revised useful Life of Vehicle = 8 years

Remaining useful Life of Vehicle = 8 years - 3 years = 5 years

Depreciation expense in Year 4 = (Carrying value - Salvage Value) / Remaining useful life

= ($30000 - $3000) / 5 = $27000 / 5 = $5,400

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