Question

Oprian Company uses straight line depreciation for a machine costing $47,300. When it was purchased, the company estimated that it would have a useful life of 7 years and a salvage value of $5,000. At the start of the fourth year, the company has revised its estimates. The machine will last an additional 5 years and the salvage value will be only $4,000. Compute the machine's book value at the end of its third year and the amount of depreciation for each of the final five years given the revised estimates.

Answer 1

Cost of machine = $47,300

Salvage value = $5,000

Estimated useful life = 7 years

Annual depreciation expense = (Cost of machine - Salvage value)/Estimated useful life

= (47,300 - 5,000)/7

= 42,300/7

= $6,043

Accumulated depreciation for 3 years = Annual depreciation expense x 3

= 6,043 x 3

= $18,129

Book value at the end of year 3
Cost	47,300
Accumulated depreciation for 3 years	- 18,129
Book value at point of revision	$29,171

Book value at the end of year 3 = $29,171

Book value at point of revision	29,171
Revised salvage value	- 4,000
Revised depreciable cost	$25,171
Remaining useful life	5 years
Annual depreciation for final 5 years	25,171/5 = $5,034