Question

Application Problem 8-13B Kulle Optical Ltd. purchased optical lens coating equipment for $90,500 on January 1, 2020. At that time, management determined that the equipment would have a useful life of five years and a residual value of $18,000. Kulle uses the straight-line depreciation method. On January 1, 2023, management revised its initial estimates and determined that the lens coating equipment would have a useful life of eight years, rather than five years, and that it would have a residual value of $12,100 at the end of that time. Determine the depreciation expense for 2023. Depreciation expense for 2023

Answer 1

Effect of Change in estimates will be given prospectively. Since re estimation of useful life and salvage value are change in estimates, the effect of the same has to be given prospectively.

Cost of Optical Lens Coating Equipment $90,500 Date of Purchase = January 01, 2020 Useful Life Residual Value Depreciation method: Straight Line Method Depreciable Amt = 5 years $18,000 90500 18000 $72,500 Useful Life 5 Depreciation Per Year = $14,500 Opening Closing Year Depreciation balance balance 2020 -$14,500 $90,500 $76,000 $76,000 2021 -$14,500 $61,500 2022 $47,000 $61,500 -$14,500 Bal. as on December 31, 2022 S47,000 The company re estimates the initial value on January 01, 2023 Residual Value Useful life Remaining Useful life = 8 -3 = $12,100 8 years 5 years Depreciable Amt = Remaining Useful life = 8 -3 = Depreciation Per Year = 47000 12100 $34,900 5 $6,980 Depreciation expense for year 2023 S6,980