Question

A manufacturing firm purchased used equipment for $135,000. The original owners estimated that the residual value of the equipment was $10,000. The carrying amount of the equipment was $120,000 when ownership transferred. The new owners estimate that the expected remaining useful life of the equipment was 10 years, with a salvage value of $15,000. What amount represents the depreciable base used by the new owners?

Answer 1

Answer:

basis: 120,000

expense per year: 12,000

Explanation:

depreciable basis or depreciable base:

cost - salvage value

The cost, will be the amount the new owners purchased the machine. Wich is 135,000 dollars

Then to calcualte the amount subject to depreciation we will subtract from cost, the salvage value. Also, this will be the salvage value estimated from the ne owners: 15,000

So, we calculate:

135,000 - 15,000 = 120,000

then we divide by the useful life of the equipment to get the depreciation expense per year

120,000 / 10 = 12,000