When originally purchased, a vehicle had an estimated useful life of 8 years. Th

Question

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $43,000 and its estimated residual value is $3,000. After 3 years of straight-line depreciation, the asset’s total estimated useful life was revised from 8 years to 4 years and there was no change in the estimated residual value. The Depreciation Expense in year 4 is:

$10,000

$9,725

$25,000

$6,525

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $43,000 and its estimated residual value is $3,000. After 3 years of straight-line depreciation, the asset’s total estimated useful life was revised from 8 years to 4 years and there was no change in the estimated residual value. The Depreciation Expense in year 4 is:

Explanation / Answer

Depreciation expense=(Cost-Residual value)/Useful life

=(43000-3000)/8=$5000/year

Hence book value at end of year 3=$43000-(5000*3)=$28000

Remaining useful life=(4-3)=1 year

Hence revised depreciation expense=(Book value-Residual value)/Useful life

=(28000-3000)=$25000(C)

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