An asset was purchased for $60,000 and originally estimated to have a useful life of 10 years with a residual value of $3,000.

After two years of straight line depreciation, it was determined that the remaining useful life of the asset was only 2 years with a residual value of $2,000.

Calculate this year's depreciation using the revised amounts and straight line method.

a. $11,400

b. $23,300

c. $24,000

d. $22,800

this year's depreciation using the revised amounts and straight line method is b. $23,300

Explanation:

Straight line method of depreciation charges the same amount of depreciation over the useful life of an asset.

Depreciation Charge = Cost - Residual Value / Number of Useful Life

Year 1

Depreciation = ($60,000 - $3,000) / 10 years

= $5,700

Year 2

Depreciation = $5,700

Year 3

Adjust the depreciation as follows:

(1) Adjust the depreciable amount (cost - residual value)

(2) Adjust the number of useful life

Depreciation = (Cost - Sum of Previous depreciation charges - New residual Value) / Remaining Useful Life

= ($60,000 - ($5,700+$5,700) - $2,000) / 2 years

= $52,000/2 years

= $23,300

b. $23,300

Explanation:

Depreciation is the systematic allocation of the cost of an asset to the income statement over the estimated useful life of that asset.

It is determined as the depreciable value of the asset over the estimated useful life of the asset where the depreciable value is the difference between the cost and salvage value of the asset.

Mathematically,

Depreciation = (Cost - Salvage value) / Estimated useful life

= ($60,000 - $3,000) / 10

= $5,700

Accumulated depreciation after 2 years

= 2 * $5,700

= $11,400

Hence the netbook value after 2 years

= $60,000 - $11,400

= $48,600

Given that the remaining useful life of the asset was only 2 years with a residual value of $2,000,

Depreciation = ($48,600 - $2,000) / 2

= $23,300