Apex Fitness Club uses straight-line depreciation for a machine costing $23,860, with an estimated four-year life and a $2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,000 salvage value.

Compute (1) the machineâs book value at the end of its second year and (2) the amount of depreciation for each of the final three years given the revised estimates.

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saniaahmed saniaahmed · Answer 1 · 2020-01-23T07:02:50+01:00

Answer:

Part 1: Book Value of Machine at the end Year 2 is $13,130

Part 2: Depreciation charge per year after revision in estimates is $3,710

Explanation:

PART 1

Depreciation charge per year = (Cost – Salvage Value) ÷ Useful Life

Depreciation charge per year = ($23,860 – $2,400) ÷ 4 Years

Depreciation charge per year = $5,365 per Year

Cost of Machine $23,860

Depreciation Charge of Year 1 $(5,365)

Book Value at the end of year 1 $18,495

Depreciation charge of year 2 $(5,365)

Book value at the end of year 2 $13,130

PART 2

Revised Deprecation Charge per year = (Cost – Revised Salvage Value – Accumulated Depreciation) ÷ Revised Remaining Useful Life

Revised Deprecation Charge per year = ($23,860 – $2,000 – $10,730) ÷ 3 Years

Revised Deprecation Charge per year = $3,710 per Year

Book Value before revision in estimate $13,130

After Revision in estimates:

Depreciation charge of year 1 $(3,710)

Book Value at the end of Year 1 $9,420

Depreciation charge of year 2 $(3,710)

Book Value at the end of Year 2 $5,710

Depreciation charge of year 3 $(3,710)

Salvage Value $2,000

*Please note that figures in brackets represent negative figures.