Thomson Corp. acquired computer equipment on January 1, 2006 for $10,000,000. The computer equipment has an estimated useful life of 6 years and $1,000,000 estimated salvage (residual) value. The firm uses the straight line depreciation method. On January 1, 2008, the firm discovered that the new technologies make it likely that the computer equipment will last only 4 years in total and that the estimated salvage (residual) value will be only $600,000.
Questions:
Compute the amount of depreciation expense for 2008 after this change in depreciable value and salvage (residual) value. Assume that the change does not represent an impairment loss.
Homework Answers
| Cost of Computer on Jan 1st 2006 | 10,000,000 |
| Less: Salvage value | 1,000,000 |
| Total amount to be depreciated | 9,000,000 |
| Depreciation year 2006 | 1,500,000 |
| Depreciation year 2007 | 1,500,000 |
| Value as on January 1st 2008 | 6,000,000 |
| Additional: Difference in salvage value | 400,000 |
| Value as on January 1st 2008 | 6,400,000 |
| Depreciation year 2008 | 1,600,000 |
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