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

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

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