An asset was purchased for $109,000 on January 1, Year 1 and originally estimated to have...

An asset was purchased for $109,000 on January 1, Year 1 and originally estimated to have a useful life of 11 years with a residual value of $9,500. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $1,800. Calculate the third-year depreciation expense using the revised amounts and straight-line method.

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Expert Solution

Depreciation expense for third year using revised amounts as per straight-line method = $22,277.28 as computed below:

Note 1: Calculation of Carrying Value of Asset at beginning of Year 3

Original Purchase Price	1,09,000
Initial Useful Life	11 years
Initial residual value	9,500
Depreciation to be charged each year as per Straight-line method = (109,000-9,500)/11 = $9,045.45
Therefore, carrying value of Asset at beginning of Year 3 = 109,000 - 9,045.45-9,045.45 = $90,909.10

Note 2: Calculation of Third-Year Depreciation

Carrying value	90,909.10
Remaining useful life	4 years
Revised residual value	1,800
Depreciation = (90,909.10-1,800)/4 = $22,277.28

ekkarill92 answered 1 year ago

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