Sandhill Co. bought equipment for $600000 on January 1, 2016. Sandhill estimated the useful life to...
Sandhill Co. bought equipment for $600000 on January 1, 2016. Sandhill estimated the useful life to be 4 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2017, Sandhill decides that the business will use the equipment for a total of 9 years. What is the revised depreciation expense for 2017?
Homework Answers
Original Depreciation
Depreciation as per straight line method
= ( Purchase cost – Salvage value) / Useful life
= ( $600000 – 0) / 4
= $ 150,000
So, Depreciation for 2016 = $ 150,000
Book value as on January 1, 2017
= Purchase cost – Accumulated depreciation at the beginning of 2017
= $600,000 - $150,000
= $ 450,000
Revised life = 9 years
Remaining useful life
= Total life – Used life
= 9 – 1 ( since depreciation has been charged for one year only)
= 8 years
So, Revised Depreciation
= ( Book value at the beginning of 2017 – Salvage value) / Remaining useful life
= ( $ 450,000 - $0) / 8
= $ 56,250
So, Depreciation for 2017 and onwards each year = $ 56,250
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