Question

Shamrock Company purchased machinery on January 2, 2015, for $900000. The straight-line method is used and useful life is estimated to be 10 years, with a $79000 salvage value. At the beginning of 2021 Shamrock spent $193000 to overhaul the machinery. After the overhaul, Shamrock estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $44000. The depreciation expense for 2021 should be

Answer 1

DEPRECIATION

SLM = (COST- SALVAGE VALUE) / USEFUL LIFE

= (900000-79000) / 10

= 82100

DEPRECIATION FROM 2015- 2020 ( 6 YEARS) = 82100 X 6 = 492600

REMAINING BOOK VALUE = 900000-492600 = 407400

OVERHAUL EXPENSE TO BE ADD IN BOOK VALUE BECAUSE IT INCREASES LIFE OF ASSETS , SO IT IS CAPITALISED EXPENSE .

REVISED BOOK VALUE 2021 = 407400 + 193000 = 600400

REVISED DEPRECIATION = (REVISED BOOK VALUE - REVISED SALVAGE VALUE ) / REMAINING USEFUL LIFE

REMAINING USEFUL LIFE = REVISED LIFE - ALREADY DEPRECIATE LIFE

= 14 - 6

= 8 YEARS

= ( 600400- 44000) / 8

= 69550 (ANSWER)