On July 1, 2019, Sandhill Co. purchased new equipment for $90,000. Its estimated useful life was 8 years with a $18,000 salvage value. On December 31, 2022, the company estimated that the equipment’s remaining useful life was 10 years, with a revised salvage value of $5,000.
Compute the revised annual depreciation on December 31,
2022.
Revised annual depreciation |
$ |
Could you please show working?
Answer
A |
Original cost |
$ 90,000 |
B |
Original salvage value |
$ 18,000 |
C = A - B |
Original depreciable base |
$ 72,000 |
D |
Original expected life [years] |
8 |
E = C/D |
Annual 12 month depreciation |
$ 9,000 |
F = E x 2.5 years |
Total Accumulated Depreciation till estimates changed for 2.5 years [6 months 2019 + 12 months 2020 + 12 months of 2021] |
$ 22,500 |
G = A - F |
Book Value at the time of change of estimate |
$ 67,500 |
H |
New salvage value |
$ 5,000 |
I = G - H |
New depreciable base |
$ 62,500 |
L |
Remaining life |
10 |
M = I/L |
Revised depreciation expense from 2022 |
$ 6,250 ANSWER |
On July 1, 2019, Sandhill Co. purchased new equipment for $90,000. Its estimated useful life was...
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