Question

Practice Do It Review 01 Wildhorse Co. purchased a piece of equipment for 571,500. It estimated an 8-year we and a $2,000 salvage value. At the end of year four (before the depreciation adjustment), testimated the new total life to be 10 years and the new salvage value to be $20.075 Compute the revised annual depreciation (Round answer to decimal places, e., 5,275) Revised annual depreciation Question Attempts of 1 used SAVEROLAR SUSRET ANSWER

Answer 1

Answer)

Calculation of annual depreciation as per revised estimate of salvage value and useful life of the asset

Annual depreciation = (Net book value in year 4 before depreciation adjustment of year 4 – Revised salvage value)/ Balance life of the asset as per revised estimate

                                            = ($ 45,775 - $ 20,075)/ 7 years

                                              = $ 3,671

Therefore revised annual depreciation will be $ 3,671.

Working Note:

Calculation of depreciation as per original estimate:

Annual depreciation = (Original cost – Salvage Value)/ Number of years of useful life of the asset

                                      = ($ 71,500 - $ 2,900)/ 8 years

                                      = $ 8,575       

Calculation of Net Book value in year 4 before adjustment of depreciation for year 4:

Net book value = Original cost – (Annual depreciation X 3 years)

                              = $ 71,500 – ($ 8,575 X 3 years)

                              = $ 71,500 - $ 25,725

                              = $ 45,775