Question

Machinery acquired new on January 1 at a cost of $80,000 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, calculate the depreciation expense for the seventh year of use.

Answer 1

Machinery cost	80000
Less: Salvage value	20000
Depreciable cost	60000
Divide by useful life	10
Annual Depreciation	6000
Accumulated Depreciation for 6 years	36000	=6000*6
Book value at the end of Year 6	44000	=80000-36000
Book value at the end of Year 6	44000
Less: Salvage value	20000
Remaining Depreciable cost	24000
Divide by Remaining useful life	3
Depreciation expense for the seventh year of use	8000