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Lecture 3

COMMERCE 1AA3 Lecture 3: Chapter 6 - Lecture 3


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Emad Mohammad
Lecture
3

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Wednesday, November 8, 2017
Chapter 6 - Lecture 3
Example: On January 1, 2001 ABC purchased a truck for $40,000 with an
estimated useful life of 6 years and salvage value of $10,000. On December 15,
2004, ABC revised its estimate of useful life to 8 years and of salvage value to
$5,000. Calculate the depreciation expense for 2004 assuming ABC uses straight
line method to amortize the truck.
The book value of the asset as of the beginning of the accounting in which the
estimates changed. !
Book value as of 1/1/2004 = cost - AD !
Book value as of 1/1/2004 = 40,000 - (40,000 - 10,000 x 6)!
""""= 40,000 - (5000)(3 years)!
""""= 40,000 - 15,000!
""" BV = $25,000!
Depreciation expense for 2004 = (BV as of 1/1/04 - New SV) / remaining useful life !
Remaining useful life = 5 years, because we’ve already accounted for 3 years. !
Depreciation Expense = (25,000 - 5,000) / 5 = $4,000!
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