Tantrax Plc has just purchased a piece of equipment for £45 000.It is expected to operate at its normal output level for 20 years,but the product it is used to manufacture is expected to be marketable only for the next 13 years.The expected salvage values are £5000 after 20 years and £8000 after 13 years.The equipment is expected to generate output consistently over its life.What depreciation should be charged in each of the first three years of the equipment's life?

Question

Quizplus · Accepted Answer

The equipment is expected to generate output consistently over its life, so the depreciation should be charged evenly over the 13 years that the product is expected to be marketable. The depreciation expense for each year is calculated as follows:Depreciation expense = (Cost of equipment - Salvage value) / Useful life= (£45,000 - £8,000) / 13= £2846.15Therefore, the depreciation expense for each of the first three years of the equipment's life is £2846.15.

Tantrax Plc Has Just Purchased a Piece of Equipment for £45