Question

A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:

$2,000

$5,400

$1,000

$1,800

$2,400

Answer 1

Depreciation per year = ( Cost - Estimated salvage value ) / Estimated useful life = ( $12,000 - $2,000 ) / 5 years	$            2,000	per year
Accumulated depreciation at the end of third year = Depreciation per year * 3 = $2,000 * 3	$            6,000
Book value of equipment at the end of third year = Original cost - Accumulated depreciation at the end of third year = $12,000 - $6,000	$            6,000
Remaining estimated useful life after third year = 5 years - 3 years	2	years

Depreciation to be charged against the equipment during each of the remaining years of its useful life = ( Book value of equipment at the end of third year - estimated salvage value ) / Remaining estimated useful life after third year = ( $6,000 - $1,200 ) / 2 years

$            2,400