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vodrldnr
Newbie
Newbie

Joined: 26 Feb 2016
Online Status: Offline
Posts: 1

Posted: 26 Feb 2016 at 03:38 \| IP Logged

This problem is from wiley

Rago Company takes a full year¡¯s depreciation expense
in the year of an asset¡¯s acquisition, and no
depreciation expense in the year of disposition. Data
relating to one of Rago¡¯s depreciable assets at
December 31, year 5, are as follows:

Acquisition year Year 2
Cost $110,000
Residual value 20,000
Accumulated depreciation 72,000
Estimated useful life 5 years

Using the same depreciation method as used in year 2,
year 3, and year 4, how much depreciation expense
should Rago record in year 5 for this asset

answer : 12,000

Using the SYD method , AD at 12/31 Y4 would be
72000 which matchs the amount given in the problem.
year 5 using SYD method is 12,000.
====================================

My Question.

I am really confused by "AD at December 31, year 5".

Data says that Accumulated depreciation at December
31, year 5. is 72,000 (=90,000*12/15) but

but I think it should be 90,000 * (14/15) = 84000

Since it is 12/31 Y5, Depreciation expense incurred Y5
should be included in AD at 12/31 Y5

if I am wrong, plz correct me

nambivar
Regular
Regular

Joined: 14 Nov 2010
Location: United States
Online Status: Offline
Posts: 144

Posted: 02 Mar 2016 at 20:01 \| IP Logged

vodrldnr : In the above, Acquisition year year 2 seems to be a typo; it should be year 1;
Now to answer your doubt: the Accumulated Depreciation at end of year 5 would be 84000 AFTER THE ACCOUNTS ARE FINALIZED;
for that to happen, the question requires us to find out how much should be charged to the accounting head Depreciation for this asset for the current year which is the 5th year;
yes, using the formula for syd, this amount comes to 12000;
Hope it is clear.

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