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Homework answers / question archive / ABC Corporation purchased equipment on January 1, 2018, for $650,000
ABC Corporation purchased equipment on January 1, 2018, for $650,000. In 2018 and 2019, ABC depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $10,000 residual value. In the beginning of 2020, due to changes in technology, ABC revised the remaining useful life to four years with no residual value. What depreciation would ABC record for the year 2020 on this equipment?
Computation of the amount of depreciation to be recorded for the year 2020:-
Before change in technology:
Depreciation per year = (Cost - Residual value) / Estimated useful life
= ($650,000 - $10,000) / 8
= $640,000 / 8
= $80,000
Book value as on December 31, 2019 = Cost - ( 2 * Depreciation)
= $650,000 - (2 * $80,000)
= $650,000 - $160,000
= $490,000
After change in technology:
Depreciation for 2020 = $490,000 / 4
= $122,500
