Murgatroyd Co. purchased equipment on January 1, 2011, for $500,000, estimating a four-year useful life and no residual value. In 2011 and 2012, Murgatroyd depreciated the asset using the sum-of-years'-digits method. In 2013, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2013 on this equipment?

Question

Quizplus · Accepted Answer

The sum-of-the-years'-digits method allocates more depreciation expense to the earlier years of an asset's life. In this case, Murgatroyd depreciated the asset for two years using the sum-of-the-years'-digits method, which means that the remaining depreciable base is $500,000 - ($500,000 x 2/10) = $400,000. Using the straight-line method, Murgatroyd would depreciate the asset over the remaining two years of its useful life, which means that the annual depreciation expense would be $400,000 / 2 = $200,000. However, since Murgatroyd changed to straight-line depreciation in 2013, the depreciation expense for 2013 would be half of the annual depreciation expense, which is $200,000 / 2 = $100,000.