Question

Asset purchased on Jan 1 109000, original useful life 10 yrs w/ residual value 12500. At the end of the third yr it was determined that the remaining life was only 4 years w: residual cost of $3000. Calculate the 3rd year depreciation expense using the revised amounts and straight line method

20675

21675

22175

22675

Answer 1

Solution:
	Answer is 2nd option $21,675
Working Notes:
	Depreciation Expense for 1st year & 2nd year = (Cost - Salvage value )/ life
	Depreciation Expense for 1st year & 2nd year = (109,000 - 12,500 )/10
	Depreciation Expense for 1st year & 2nd year =9,650 per year
Hence,	Depreciation already charged till 3rd year before 3rd year Depreciation.	= 2 x Depreciation per year
		= 2 x 9650
		=$19,300
At end of 3rd year	Revised book value = Cost - Depreciation charged till 3rd year
	Revised book value = $109,000 - $19300
	Revised book value = $89,700
	Revised residual value =$3,000
	Revised life= 4 years
	Revised depreciation per year = (Revised book value - Revised residual value )/Revised life
	Revised depreciation per year = ($89,700 - $3,000 )/4
	Revised depreciation per year = $86,700/4
	Revised depreciation per year = $21,675
	Hence , Depreciation Expense for 3rd year is $21,675
Notes:	Deprecation Expense for each 3rd year & 4th , 5th, 6th years are $21,675 will be equal as per straight line method
Please feel free to ask if anything about above solution in comment section of the question.