Question

Marigold Corp. purchased a depreciable asset for $617000 on January 1, 2018. The estimated salvage value...

Marigold Corp. purchased a depreciable asset for $617000 on January 1, 2018. The estimated salvage value is $59000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2021, Marigold changed its estimates to a total useful life of 5 years with a salvage value of $96000. What is 2021 depreciation expense?

$62000

$186000

$92400

$167500

Business   Accounting   
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Answer #1

Answer: Option $167500

Exlanation:

Depreciation = (Cost - Salvage Value)/ Useful life of Asset

=($617000 -$59000)/9

= $62000 per year

Accumulated Depreciation Expense from Jan 1 2018 to 31 Dec 2020 = $62000*3 = $186000

Book Value of Asset on Januar 1 2021 = $617000 - $186000 = $431000

In the year 2021 Marigold changed its useful life and Salvage value. So the Depreciation for 2021 is

Depreciation =(Book Value - Revised Salvage Value )/ remaining Useful Life

=($431000 -$96000)/(5-3)

=$335000/3

=$167500

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