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An asset was purchased for $140,000. It had an estimated salvage value of $35,000 and an...

An asset was purchased for $140,000. It had an estimated salvage value of $35,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $28,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be 11900. explain how

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Answer #1

Solution:

Depreciation Expense per year during Year 1 to Year 5 = (Purchase price - Salvage Value) / Useful Life

= ($140,000-$35,000) / 10 = $10,500

Carrying Value of Asset after 5 years of use = Purchase price - Total depreciation upto 5 years

= $140,000- (10500*5) = $87,500

Remaining Useful Life = 5 years

Revised Salvage Value = $28,000

Therefore, Depreciation in year 6 and onwards = (Carrying value After 5 years of use - Revised salvage value) / Remaing useful life

= ($87,500- $28,000) / 5 = $11,900

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