Question

At the end of the last accounting period, XYZ's net PPE (Property, Plant and Equipment) was...

At the end of the last accounting period, XYZ's net PPE (Property, Plant and Equipment) was $3.9m. Given that the gross investment in PPE was $6.5m and that the depreciation expense for last year was $650,000 what is the estimate of remaining useful life of XYZ's asset base

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Answer #1

Total number of useful life = Gross investment in PPE/Depreciation expense = $6,500,000/$650,000 = 10years
Accumulated depreciation = Gross investment in PPE - Net PPE = $6,500,000 - $3,900,000 = $2,600,000
PPE used life = Accumulated depreciation/Depreciation per annum = $2,600,000/$650,000 = 4years
Remaining useful life = Total number of useful life - PPE used life = 10years - 4years = 6years

Alternatively:
Remaining useful life = Net PPE/Depreciation expense per annum = $3,900,000/$650,000 = 6years

Note Depreciation rate = Depreciation/gross investment = $650,000/$6,500,000 = 10%. It implies that depreciation is under straight line method.

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