An asset was purchased for $120,000 on January 1, 2010 and originally estimated to have a useful life of 10 years with a residual value of $10,000. At the beginning of 2012, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the 2012 depreciation expense using the revised amounts and straight line method.
Please show work to help me understand the material.
Cost of asset= $120,000
Useful life = 10 years
Residual value - $10,000
Annual depreciation expense = ( Cost of asset- Residual value)/Useful life
= (120,000-10,000)/10
= $11,000
Accumulated Depreciation expense for 2 year = Annual depreciation expense x 2
= 11,000 x 2
= $22,000
Book value of asset after 2 years = Cost of asset - Accumulated Depreciation expense for 2 year
= 120,000-22,000
= $98,000
Revised residual value = $2,000
Revised remaining useful life = 4 years
Revised depreciable cost = Book value of asset after 2 years - Revised residual value
= 98,000-2,000
= $96,000
Revised annual depreciation expense = Revised depreciable cost/ Revised useful life
= 96,000/4
= $24,000
The 2012 depreciation expense using the revised amounts and straight line method.= $24,000
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