An asset bought for $147 000 with a zero residual value was expected to last for seven years before it needed replacing. If at the end of the third year it was decided to extend its total useful life by four years (new remaining life is now eight years), calculate the new depreciation charge using the straight-line approach.

Question

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The asset's original annual depreciation was $21,000 ($147,000 / 7 years). After 3 years, $63,000 has been depreciated, leaving a book value of $84,000. With a new remaining life of 8 years, the new annual depreciation is $10,500 ($84,000 / 8 years).

An Asset Bought for $147 000 with a Zero Residual