Question

0.). Howard Inc. acquired a new machine on January 1 at a cost of $80,000. It was estimated to have a useful life of 10 years and a residual salvage value of $20,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery, management decided that the estimate of useful life had been too long and that the machinery would have to be retired after three years, that is, at the end of the ninth year of service. Under this revised estimate, the depreciation expense for the seventh year of use would be

Answer 1

$80,000 $20,000 Ans Cost Salvage Value Useful life 10 Straight Line Depreciation (Cost - Salvage Value)/Useful life Depreciation ($80000-$20000)/10 $6,000 Depreciation Depreciation for six year is $36000($3000x 6) Book Value at the beginning of seventh year is $44000 ($80000 $36000) Revision of salvage value and estimated useful life If there is a change in the estimate of salvage value or estimated useful life then the effect of such revision in estimates is be considered prospectively i.e. the change in depreciation Expense is be recoded in the year in which depreciation changes and subsequent accounting periods Revised Deprecation Expense (Cost Revised Salvage Value Accumulated Depreciation)/ Revised Remaining Useful life Revised Deprecation Expense ($80000-$6000-($36000)]/(9-6) -$8000 The depreciation expense for seventh year is $8000