Question

Apex Fitness Club uses straight-line depreciation for a machine costing $23,860, with an estimated four-year life and a $2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,000 salvage value. Required: 1. Compute the machine’s book value at the end of its second year. 2. Compute the amount of depreciation for each of the final three years given the revised estimates.

Answer 1

1
Book value at the end of Year
Cost	$23,860
Accumulated depreciation 2 years	($10,730)
Book value at point of revsion	$13,130
Two years' accumulated depreciation	[($23,860 (–) $2,400) / 4 years] × 2 years  for 2 years                   = $10,730
	10,500
2
Revised depreciaion year 3-5 years
Book value at point of revision	$13,130
Revised salvage value	$2,000
Remaining depreciable cost	$11,130
Years of life remaining	3 years
Revised annual depreciation years	$11,130/3
(3-5)
	$3,710