Ivanhoe Company purchased a machine on January 1, 2016, for $990000. At the date
ID: 2525904 • Letter: I
Question
Ivanhoe Company purchased a machine on January 1, 2016, for $990000. At the date of acquisition, the machine had an estimated useful life of 6 years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2019, Ivanhoe determined, as a result of additional information, that the machine had an estimated useful life of 8 years from the date of acquisition with no salvage. An accounting change was made in 2019 to reflect this additional information. What is the amount of depreciation expense on this machine that should be charged in Ivanhoe's income statement for the year ended December 31, 2019?
Explanation / Answer
SLM depreciation charged in 2016 , 2017 and 2018 = ( 990000 - 0 ) / 6 years = $ 165000 per year
Book value of machinery as on January 1, 2019 = 990000 - ( 165000 * 3 years ) = $ 495000
SLM depreciation charged in 2019 = ( 495000 - 0 ) / ( 8 years - 3 years passed ) = $ 99000 per year
What is the amount of depreciation expense on this machine that should be charged in Ivanhoe's income statement for the year ended December 31, 2019?
$ 99000
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