QS 8-7 Computing revised depreciation LO C2 On January 1, the Matthews Band pays $65,800 for sound equipment. The band estimates it will use this equipment for four years and after four years it can sell the equipment for $2,000. Matthews Band uses straight-line depreciation but realizes at the start of the second year that this equipment will last only a total of three years. The salvage value is not changed. Compute the revised depreciation for both the second and third years.

$23,925 for both the second and third years

Explanation:

Depreciation is the systemic recognition of the cost of an asset in the profit or loss statement. It is an expense.

Depreciation may be computed on a straight line basis as

Depreciation = (cost - salvage value)/estimated useful life

Given that Matthews Band pays $65,800 for sound equipment. The band estimates it will use this equipment for four years and after four years it can sell the equipment for $2,000

Depreciation in the first year of use

= ($65,800 - $2,000)/4

= $15,950

The carrying amount at the start of the second year

= $65,800 - $15,950

= $49,850

Depreciation for the second year and 3rd year after the company realizes that this equipment will last only a total of three years

= ($49,850 - $2,000)/2

= $47,850/2

= $23,925

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