Question

1. An asset that cost $72,000 has a current book value of $42,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a salvage value of $12,600. Using the straight-line method, calculate the revised annual depreciation.

__________________________________________________________

1	2	3	4	5	6	7	8	9	10

Working Paper (Optional)

Answer 1

Change in depreciation is a change in estimation and not change in accounting policy. So no correction of previous depreciation is required. Only prosepctive change is recorded. Thus the initial cost of $72,000 is irrelevant. The current book value of $42,000 is considered as cost.

Book value / Cost = $42,000

Salvage value = $12,600

Estimated useful life = 4 years

Revised annual depreciation = (Cost -Slavage value) / Estimated useful life = ($42,000 - $12,600) / 4 years = $7,350