An asset was purchased for $111,000 on January 1, Year 1 and originally estimated to have a useful life of 8 years with a residual value of $13,500. At the beginning of the third year, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the third-year depreciation expense using the revised amounts and straight-line method.

3rd year depreciation expense = $21156.25

Explanation:

Annual Depreciation [Dep pa]  = [Cost of Asset - Scrap Value] / Useful Years                                              

At beginning :  

Asset Cost = 111000 ; Scrap Value = 13500 ; Useful Years = 8

Dep pa = [111000 -13500] / 8

= 97500 / 8 → = 12187.5

Depreciation for 2 years :  Dep pa x 2 → = 12187.5  x 2 → =  24375

Remaining asset value at end of 2 years = Cost - total depreciation until now

= 111000 - 24375  → = 86625

At beginning of 3rd year :

Remaining Cost = 86625 ; Scrap Value = 2000 ; Useful Years = 4

Dep pa = [ 86625 - 2000]  / 4

= 84625 / 4  → = 21156.25

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