Tantrax Ltd 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?

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Quizplus · Accepted Answer

The equipment is expected to be marketable for only 13 years, so the depreciation should be calculated based on its useful market life of 13 years, not its operational life of 20 years. The cost of the equipment is $45,000, and its salvage value after 13 years is expected to be $8,000. Therefore, the total depreciable amount is $45,000 - $8,000 = $37,000. Spread over 13 years, the annual depreciation is $37,000 / 13 = $2,846.15.

Tantrax Ltd Has Just Purchased a Piece of Equipment for $45