Question

When originally purchased, a vehicle costing $23,000 had an estimated useful life of 8 years and an estimated salvage value of $3,000. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

Select one:

a. $2,875.

b. $11,500.

c. $5,750.

d. $5,000.

Answer 1

Solution:
	Answer is A) $5,000
Working Notes:
	Depreciation rate per year till end of 4th year
	=(cost- salvage)/life
	=(23000-3000)/8
	=20,000/8
	=2,500
	Total depreciation charged till end of 4th year
	= annual depreciation x no of years
	= 2,500 x 4
	= 10,000
	After end of 4th year
	no of year left = Revised year - expired till 4th year
	no of year left = 6 - 4
	no of year left = 2
	cost of vehicle depreciable value at end of 4th year
	=cost - Total depreciation charged till end of 4th year - salvage value
	=23,000 - 10,000 - 3,000
	=10,000
So	Annual depreciation charge for remaining two year
	Annual depreciation
	=(cost of vehicle depreciable value left)/remaining life
	=10,000/2
	=$5,000
Hence	The depreciation expense for year 5
	=$5000
	The Annual depreciation charge for remaining two year