If an asset is purchased for $10,000, and has an estimated life of 6 years, and
ID: 2500081 • Letter: I
Question
If an asset is purchased for $10,000, and has an estimated life of 6 years, and it costs $2,000 to install the asset, and it is not expected to have any salvage value after its six year useful life, how much will the depreciation be in the fourth year recorded on the income statement if the organization used straight-line depreciation? How much will the accumulated depreciation be for that asset on the balance sheet? If the organization uses an accelerated depreciation method such as Sum-of-the-years’ digit, will the depreciation in the fourth year be higher or lower than it would be using the straight line method? Will the accumulated depreciation be higher or lower after the fourth year than it would be using the straight line method?
Explanation / Answer
Depreciation for 4th year
Total cost = 10000+2000 = 12000
Per Year = 12000/6
= 2000
4th year = 2000*1 = $ 2000
Accumulated Depreciation = 2000*4 = $ 8000
2. The depreciation would be lower is it uses some other method of depreciation other than straight line method.
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