What happens if an asset is partway through the useful life and an expenditure is made...

What happens if an asset is partway through the useful life and an expenditure is made that significantly extends the estimated useful life?

Solutions

Expert Solution

Answer

Her if any asset is partway through the useful life and an expenditure is made that significantly extends the estimated useful life. such expenditure will be capitalized and added to the value of the asset as being of capital nature.

Reason

Any expenditure which is if incurred will result in increase in life of the asset is capitalized and added to the value of assets and will be spread over the new life of the asset. Such expenditure are treated as capital expenditure which is said to give benefit for more than one accounting year or for a longer period. In such case depreciation of the asset will also be recomputed for the remaining extended life of the asset. Revised depreciation will be calculated by spreading over the remaining life of the asset the total of book value of the asset and expenditure incurred for extending the life

Hope this much answer is sufficient if more is required kindly mention in comment section please

Hit Thumbs up if satisfied

Thank you

ekkarill92 answered 2 hours ago

Next > < Previous

Related Solutions

How is the useful life of an intangible asset determined?

what are some of the variables that make a plant asset useful life difficult to predict?

"Consider the following data on an asset Cost of the asset, I = $70,000 Useful life,...

"Consider the following data on an asset Cost of the asset, I = $70,000 Useful life, N = 7 years What is the book value at the end of the useful life if you depreciate according to the double-declining-balance (DDB) method?"

Question: An asset has a useful life of 3 years. cost of the asset is $2000....

Question: An asset has a useful life of 3 years. cost of the asset is $2000. Residual value is $500. the asset can be used for a total of 1500 hours. it is used for 650 hours in the first year of operations and for 600 hours in the second year. Depreciation expense for the three years will be as follows: Calculate annual depreciation for the first and second year of the operations using (1) straight-line method (2) Units of...

If an asset cost $48,000 and has a residual value of $8,000 and a useful life...

If an asset cost $48,000 and has a residual value of $8,000 and a useful life of eight years, the depreciation in the third year, using the double-declining balance method, would be (assume a full year of depreciation in the first year): a. $5,625 b. $9,000 c. $12,000 d. $6,750 A building was purchased for $250,000 and has a useful life of 20 years, and a residual value of $50,000. After it has been used 4 years, its accumulated depreciation...

Cost Salvage Value Useful Life Units of Production MACRS Class Life Asset #1 $ 1,400,000 $ ...

Cost Salvage Value Useful Life Units of Production MACRS Class Life Asset #1 $ 1,400,000 $ 100,500 5 2016 41,000 5 * Total units of 2017 48,000 output = 2018 26,000 160,000 On january 1st 2016, the company purchased the above asset. Then, calculate the annual depreciation for 2016, 2017, and 2018 assuming they were all purchased June 1st, 2016. Show all of your work.

The asset cost is $600,000. The machine is expected to have a 10-year useful life with...

The asset cost is $600,000. The machine is expected to have a 10-year useful life with no salvage value. Straight-line depreciation is used. The net cash inflow is expected to be $138,000 each year for 10 years. The company uses a 12% discount rate in evaluating capital investments. What is the Net present value and ARR?

Consider an asset with the cost basis of $500,000, useful life of 5 years and salvage...

Consider an asset with the cost basis of $500,000, useful life of 5 years and salvage value of 10,000 at the end of its useful life. This asset generates yearly revenue of $275,000 and its operating cost is $55,000 per year. Average inflation rate is estimated to be 4% over the next 5 years. Calculate tax saving in year 2 due to depreciation; if the double declining method is used for depreciation (tax rate is 30%). (Report your answer in...

An asset was purchased on January 1, 2020 for $150,000. The estimated useful life is 5...

An asset was purchased on January 1, 2020 for $150,000. The estimated useful life is 5 years and 31,250 units. With the residual value being $25,000 prepare a schedule of depreciation for each of the Straight-line method, Double Declining Method and the Units of Production method. The units to be produced are as follows: Year 1 5,000 units, Year 2 4,000 units, Year 3 6,000 units, Year 4 10,000 units and Year 5 12,000 units. What is the depreciation expense...

On April 20, 2016, Maskell Co. purchased an asset costing $66,000 with a useful life of...

On April 20, 2016, Maskell Co. purchased an asset costing $66,000 with a useful life of 9 years and a residual value of $6,000. The company uses the sum-of-the-years'-digits depreciation. Required: Compute depreciation expense for 2016 using the a. nearest whole month method b. nearest whole year method c. half-year convention method

Subjects