In: Accounting
Brief Exercise 11-7
Novak Company purchased a computer for $8,880 on January 1,
2016. Straight-line depreciation is used, based on a 5-year life
and a $1,110 salvage value. In 2018, the estimates are revised.
Novak now feels the computer will be used until December 31, 2019,
when it can be sold for $555.
Compute the 2018 depreciation. (Round answer to 0
decimal places, e.g. 45,892.)
Step-1:Calculation of book value of asset in 2018 before any revision | ||||||||||||||
Cost | $ 8,880 | |||||||||||||
Less Accumulated depreciation | $ 3,108 | |||||||||||||
Book Value | $ 5,772 | |||||||||||||
Working: | ||||||||||||||
# 1 | Straight line depreciation | = | (Cost-Salvage Value)/Useful life | |||||||||||
= | (8880-1110)/5 | |||||||||||||
= | $ 1,554 | |||||||||||||
# 2 | Accumulated depreciation | = | Annual deprecistion*2 | |||||||||||
= | $ 1,554 | * | 2 | |||||||||||
= | $ 3,108 | |||||||||||||
Step-2:Calculation of depreciation for 2018 | ||||||||||||||
Straight line depreciation in 2018 | = | (Book Value in 2018-Revised Salvage Value)/Revised remaining useful life | ||||||||||||
= | (5772-555)/2 | |||||||||||||
= | $ 2,609 | |||||||||||||
Thus, | ||||||||||||||
2018 depreciation is | $ 2,609 | |||||||||||||