Charterhouse Services purchased a van on 1 January 2013, for $56 000. It has an estimated life of 5 years, and an estimated residual value of $6 000. Dawson uses straight- line depreciation. At the end of 2015, Charterhouse revised the estimated life of the asset from 5 years to 8 years. How much was the depreciation expense in the year 2016?

Question

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The original annual depreciation was ($56,000 - $6,000) / 5 = $10,000. By the end of 2015, 3 years of depreciation had been charged, totaling $30,000. The book value at the end of 2015 was $56,000 - $30,000 = $26,000. With the revised life of 8 years, 5 years remain. The new annual depreciation is ($26,000 - $6,000) / 5 = $4,000.

Charterhouse Services Purchased a Van on 1 January 2013, for $56