Banger Co purchased delivery equipment for 56000 on January

Banger Co. purchased delivery equipment for $56,000 on January 1, 2018. Banger estimated that the delivery equipment would have a life of five years and a $6,000 salvage value. Banger uses the straight-line method to compute the depreciation expense. At the beginning of year 4 (2021) Banger revised the useful life of the delivery equipment to be a total of seven years. The estimated salvage value was not changed. Compute the depreciation expense for each of the seven years.

Solution

Depreciation expense/year =(Cost-Salvage value)/Useful Life

=(56000-6000)/5=$10000/year

Hence Depreciation expense for the first 3 years=$10000/year

Book value as on year 4=Cost-Accumulated Depreciation expense

=$56000-(10000*3)=$26000

Hence revised Depreciation expense =($26000-$6000)/4 years

=$5000/year for the remaining 4 year.