Question

Apex Fitness Club uses straight-line depreciation for a machine costing $23,860, with an estimated four-year life and a $2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,000 salvage value.
  
Required:
1. Compute the machine’s book value at the end of its second year.
2. Compute the amount of depreciation for each of the final three years given the revised estimates.

Apex Fitness Club uses straight-line depreciation for a machine costing $23,860, with an estimated four-year life and a $2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,000 salvage value.

Book value at point of revision
Revised salvage value
Remaining depreciable cost
Years of life remaining
Revised annual depreciation years 3-5

Answer 1

• Workings

A	Original cost	$23,860
B	Original salvage value	$2,400
C = A - B	Original depreciable cost	$21,460
D	Original life	4
E = C/D	Straight line annula Depreciation	$5,365
F = E x 2	2 Year balance of Accumulated Depreciation	$10,730
G = A - F	Book value at point of revision	$13,130

• Requirements

A	Book value at point of revision	$13,130
B	Revised salvage value	$2,000
C = A - B	Remaining depreciable cost	$11,130
D	Years of life remaining	3
E = C/D	Revised annual depreciation year 3-5	$3,710