Swallow Ltd. 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 Swallow's pieces of equipment at December 31, 2019, are as follows: Acquisition year...........................2017
Cost..............................................$280,000
Residual value..............................40,000
Accumulated depreciation............219,520
Estimated useful life.....................5 years Using the same depreciation method that was used in 2017, 2018, and 2019, how much depreciation expense should be recorded in 2020 for this asset?

Question

Quizplus · Accepted Answer

The depreciation expense per year is calculated as (Cost - Residual value) / Estimated useful life = ($280,000 - $40,000) / 5 = $48,000 per year. Since Swallow Ltd. takes a full year's depreciation in the year of acquisition and none in the year of disposition, by the end of 2019 (3 years of depreciation), the accumulated depreciation should be $48,000 * 3 = $144,000. However, the accumulated depreciation is given as $219,520, indicating an error in the provided data. Assuming the method and the data up to 2019 were correct, the total depreciation over the asset's life would be $280,000 - $40,000 = $240,000. By 2020, the asset would be in its 4th year of depreciation, but since the total depreciation cannot exceed $240,000, and $219,520 has already been recorded, the maximum additional depreciation for 2020 can only be $240,000 - $219,520 = $20,480, which aligns with option D.