Question

Equipment was purchased on January 5, Year 1, at a cost of $90,000. The equipment had an estimated useful life of eight years and an estimated residual value of $8,000. After using the equipment for three years, the useful life was revised to a total of 10 years and the residual value was reduced to $2,004 Determine the straight-line depreciation expense for Year 4 and the following years.

Answer 1

Depreciation for year 4 and following years= $8178

Working

Straight line Method for 3 years
A	Cost	$ 90,000.00
B	Residual Value	$    8,000.00
C=A - B	Depreciable base	$ 82,000.00
D	Life [in years ]	8
E=C/D	Annual SLM depreciation	$ 10,250.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$    90,000.00	$ 10,250.00	$ 79,750.00	$   10,250.00
2	$    79,750.00	$ 10,250.00	$ 69,500.00	$   20,500.00
3	$    69,500.00	$ 10,250.00	$ 59,250.00	$   30,750.00

Depreciation schedule for year 4

Straight line Method
A	Book value at the end of Year 3	$ 59,250.00
B	Residual Value	$    2,004.00
C=A - B	Depreciable base	$ 57,246.00
D	Life [in years left ] (10-3)	7
E=C/D	Annual SLM depreciation	$    8,178.00

Year	Book Value	Depreciation expense
4	$    59,250.00	$    8,178.00