Ellen\'s Antiques reported the following in its December 31, 2011, balance sheet

Question

Ellen's Antiques reported the following in its December 31, 2011, balance sheet:
Equiptment                                                                            4,000,000

          Accumulate Depreciation-equiptment                              3,150,000
In a disclosure note, Ellen's indicates that it uses straight-line depreciation over eight years and estimates salvage value at 10% of cost.
Required: Compute the average age of Ellen's equipment at 12/31/2011.

Ellen's Antiques reported the following in its December 31, 2011, balance sheet: Equiptment 4,000,000 Accumulate Depreciation-equiptment 3,150,000 In a disclosure note, Ellen's indicates that it uses straight-line depreciation over eight years and estimates salvage value at 10% of cost. Required: Compute the average age of Ellen's equipment at 12/31/2011.

Explanation / Answer

Hi,

Please find the answer as follows:

Annual Depreciation = (Cost - Salvage Value)/Life of the Equipment = (4000000 - 10%*4000000)/8 = 450000

Average Age = Accumulated Depreciation/Annual Depreciation = 3150000/450000 = 7 Years

Answer is 7 Years.

Thanks.

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