Question

In: Accounting

Chambers plc purchased a piece of equipment for €36,000. It estimated a 6-year life and €6,000...

Chambers plc purchased a piece of equipment for €36,000. It estimated a 6-year life and €6,000 residual value. Thus, straight-line depreciation €5,000 per year. At the end of year three (before the depreciation adjustment), it estimated the new total life to be 10 years and the new residual value to be €2,000. What will be the revised depreciation?

Solutions

Expert Solution

Solution :

Step 1:

Calculation of depreciation already charged for two years :

Purchase cost of equipment = € 36,000

Residual value = € 6,000

Depreciation per year = € 5,000

Accumulated depreciation for 2 years

= 2 years * € 5,000

=€ 10,000

Step 2 : calculation of depreciation to be charged in third year based on new estimation of asset life and salvage value

Revised value of Depreciation per year = ( purchase cost of asset - salvage value ) / life in years

= ( € 36,000 - € 2,000 ) / 10

= € 34,000 / 10

= € 3,400 per year.

Step 3 : calculation of depreciation to be charged in third year.

= total depreciation for 3 years - depreciation already charged in last 2 years

= ( 3 * € 3,400 ) - ( 2* € 5,000 )

= € 10,200 - 10,000

= € 200

Alternative approach :

Current year depreciation of € 3,400 will be adjusted with excess value of depreciation charged in last two years based on new estimation.

Excess depreciation charged in last two years

= depreciation on previous estimation - depreciation on new estimation

=( € 2 * 5,000 ) - ( € 2 * 3,400 )

= € 10,000 - € 6,800

= € 3,200

In current year depreciation amount, this excess depreciation charged in last years will be adjusted.

Revised value of current year depreciation

= € 3,400 - € 3,200

= € 200

Answer : the revised value for depreciation to be charged at end of year 3 will be € 200.

Finish

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Bridgeport Corp. purchased a piece of equipment for $36,000. It estimated a 8-year life and $1,440...

Bridgeport Corp. purchased a piece of equipment for $36,000. It estimated a 8-year life and $1,440 salvage value. At the end of year 4 (before the depreciation adjustment), it estimated the new total life to be 10 years and the new salvage value to be $2,880. Compute the revised depreciation. Company uses straight-line depreciation method. (Round answer to 0 decimal places, e.g. 125.) Revised depreciation: ???

Sarasota Corp. purchased a piece of equipment for $60,000. It estimated a 8-year life and $2,400...

Sarasota Corp. purchased a piece of equipment for $60,000. It estimated a 8-year life and $2,400 salvage value. At the end of year 4 (before the depreciation adjustment), it estimated the new total life to be 10 years and the new salvage value to be $4,800. Compute the revised depreciation. Company uses straight-line depreciation method. (Round answer to 0 decimal places, e.g. 125.)

Whispering Winds Corp. purchased a piece of equipment for $ 70,100. It estimated an 8-year life and...

Whispering Winds Corp. purchased a piece of equipment for $ 70,100. It estimated an 8-year life and a $ 2,900 salvage value. At the end of year four (before the depreciation adjustment), it estimated the new total life to be 10 years and the new salvage value to be $ 8,500. Compute the revised depreciation. (Round answer to 0 decimal places, e.g. 5,275.) Revised annual depreciation $____________

A contractor purchased a piece of heavy equipment of $60,000 with an estimated life of 10...

A contractor purchased a piece of heavy equipment of $60,000 with an estimated life of 10 years and a salvage value of $5,000. The company's effective tax rate for state and federal taxes is 40% and its minimum attractive rate of return is 10%. The gross income generated by the equipment before depreciation and taxes was estimated to be $8000 per year. Determine the after-tax cash flow for each year. Compare the present worths for the following methods of depreciation....

Your company just purchased a piece of equipment. The maintenance cost of the equipment is estimated...

Your company just purchased a piece of equipment. The maintenance cost of the equipment is estimated at $1,200 for the first year and it is to rise by $200 each year. How much should be set aside now to have enough to cover for the maintenance cost for the next 7 years? Assume payments are made at the end of each year and an interest rate of 4%.

Office equipment was purchased 6 1/2 years ago for $250,000, with an estimated life of 8...

Office equipment was purchased 6 1/2 years ago for $250,000, with an estimated life of 8 years and a residual value of $10,000, is now sold for $45,000 cash. (Appropriate entries for depreciation had been made for the first six years of use.) Journalize the following entries: (10 points) (a) Record the depreciation for the one-half year prior to the sale, using the straight-line method. (b) Record the sale of the equipment.

A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000...

A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period, a recovery period is five years. Prepare a depreciation schedule for the piece of equipment using the straight-line method

part 1) A piece of equipment is purchased for $400,000 and has an estimated salvage value...

part 1) A piece of equipment is purchased for $400,000 and has an estimated salvage value of $50,000 at the end of a five year recovery period. Using the sum of the years depreciation method, what is the book value in year 4? Group of answer choices $73,333 -$216,667 $120,000 $50,000 part 2) A piece of equipment is purchased for $100,000 and has an estimated salvage value of $12,000 at the end of a seven year recovery period. Using the...

6-10 A company purchased factory equipment for $250,000. It is estimated that the equipment will have...

6-10 A company purchased factory equipment for $250,000. It is estimated that the equipment will have a $25,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be $100,000 $60,000 $90,000 $43,200 The maturity value of a $30,000, 8%, 3-month note receivable is $30,600 $30,240 $32,400 $30,200 The following totals for the month of April were...

Bio Ltd purchased a piece of equipment in January 2016 for $5,000,000 which had an estimated...

Bio Ltd purchased a piece of equipment in January 2016 for $5,000,000 which had an estimated useful life of 8 years with no residual value. By 31 December 2018, new technology was introduced that would accelerate the obsolescence of this equipment. Bio Ltd estimated that the present value of the expected future net cash flows on this equipment would be $2,600,000 and that the fair value less cost to sell the equipment would be $2,800,000. Bio Ltd intends to continue...

Subjects