Question

Machinery purchased for $50,000 by Tom Brady Co. in 2010 was originally estimated to have a life of 10 years with a salvage value of $5,000 at the end of that time. Depreciation has been entered for 6 years on this basis. In 2016, it is determined that the total estimated life should be 12 years with a salvage value of $2,500 at the end of that time. Assume straight-line depreciation. 

Instructions 

(a) Determine the depreciation expense for 2016.

Answer 1

Answer

• Requirement [a]
  Depreciation expense for 2016 = $ 3,417 (or $ 3416.67 or $ 3416.7)

A	Cost	$               50,000.00
B	Residual Value	$                 5,000.00
C=A - B	Depreciable base	$               45,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$                 4,500.00
F = E x 6	6 year Accumulated Depreciation	$               27,000.00
G = A - F	Book value at the time of revision	$               23,000.00
H	New Residual Value	$                 2,500.00
I = G - H	New Depreciable base	$               20,500.00
J = 12 years - 6 years passed	New remaining life	6
K = I/J	New revised depreciation from 7th year	$ 3,416.67 Answer

Answer 2

(a) Annual depreciation = (50000-5000)/10 = $4500 per year

Net book value at the beginning of 2016 = $50000 - 4500*6 = $23,000

Depreciation expense for 2016 = (23000-2500)/6 = $3417