Corporation had a piece of sophisticated manufacturing equipment purchased on Ja
ID: 2500180 • Letter: C
Question
Corporation had a piece of sophisticated manufacturing equipment purchased on January 1, 2010 at a cost of $1 million. it originally depreciated this equipment over a 10- year estimated useful life using a salvage value of $50,000. During 2013, Technological changes in the manufacturing process led Innotech to conclude that the useful life of the equipment would be much shorter than originally believed, and that it would have no salvage value. Compute depreciation expense for 2013 under a revised estimate that the total estimated useful life of the equipment would be only 5 years, and that it will have zero salvage value.
Explanation / Answer
Annual depreciation originally = 1000000-50000/10 i.e 95000
Depreciation till 2013 = 95000*3 i.e 285000
Annual depreciation revised estimate = 1000000-0/5 i.e 200000
Depreciation till 2013 = 200000*3 i.e 600000
Depreciation short booked = 600000-285000 i.e 315000
Depreciation expense for the year 2013 = 200000+315000 i.e 515000