2. Beta Corp bought equipment in 1/1/14 for $40,000. The equipment was depreciat

Question

2. Beta Corp bought equipment in 1/1/14 for $40,000. The equipment was depreciated over 5 years using straight line method with a residual value of $4,000. On January 1, 2016 it was determined that the lifie of the equipment should have been 10 years with a residual value of $1800. Using straight line, what is depreciation in 2016. Assume instead that the corporation switches to sum of the years digits in 2016. The new life is still 10 years with an $1800 residual value. what is depreciation in 2016?

Explanation / Answer

Annual depreciation as per original estimated life = (40000-4000)/5 = $         7,200 Depreciation for 2 years upto 1/1/2016 = $       14,400 Book value as on 1/1/2016 = 40000-14400 = $       25,600 Reestimated life as on 1/1/14 10 years Balance years = 10 - 2 = 8 years Reestimated salvage value $         1,800 New depreciable base = 25600-1800 = $       23,800 Annual depreciation = 23800/8 = $         2,975 Depreciation for 2016 $         2,975 Answer SUM OF THE DIGITS METHOD: Depreciation for 2016 = 23800*8/36 = $   5,288.89 Answer [Sum of the years = 36]

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