Question

Bevel, Inc. operates a business manufacturing engraved nameplates for office doors. The company purchased an engraving machine in January, year 1 for $30,000 and the estimated useful life was 10 years. The engraving machine was being depreciated using the straight-line method and has no salvage value. In year 4, the manufacturing management, impressed with the machine, decides to extend the useful life to 12 years. What amount of depreciation expense (to the nearest whole dollar) should the company report in its financial statements for the year ending December 31, year 4?  

Answer 1

purchase amount of machinery in year 1 = $ 30,000

useful life = 10 years

method = straight line method (SLM)

salvage value = 0

depreciation to be charged per year under SLM = 30000/10 i.e. 3000 per year

value of machinery at end of 3rd year = purchase amount - depreciation for the three years

= 30000 - (3000+3000+3000)

=21000

and remaining life of machinery = useful life - years used

= 10-3 i.e. 7

now the useful life is changed to 12 years

therefore remaining life of machinery is = 12 -3 i.e 9 years

now value of machinery at year end 3 is to be depreciated for 9 years using SLM

hence depreciation for the year ended 4 is calculated as follows:-

value at end of 3rd year / remaining life of machinery

i.e. =21000/9

=2333.33

rounded off = $2333

hence amount of depreciation expense for year ending December 31, year 4 is $2333