UK Regarding Depreciation Expense after changes

[goatinthehouse]

How to find depreciation expense for the following years using straight line depreciation method if there is an upgrading to the asset ( equipment ) ?
ONLINE depreciation expense formula is (cost of equipment - salvage value ) / (years depreciated).
For example co buys EQUIPMENT A for 20,000 . It depreciates over 5 years to a salvage value of 2,000. However in the beginning of year 3 company upgrades the equipment costing them $5,000 , this also extended years equipment depreciated from 5 to 7 years . Now how do I find the new depreciation expense from 3th years onwards ? What is the depreciation cost of equipment now ? Please helpppppp meeeeeee

 

[Fidget]

You just add the extra cost to the original cost, deduct the scrap value and depreciation suffered to the end of Year 2, and then divide what's left by new useful life remaining. So,

Cost: £20,000 + £5,000 = £25,000
Scrap value = £2,000
Value to depreciate = £23,000
less dep'n already suffered in Y1 & Y2 = £23,000 - £3,600 - £3,600 = £15,800
New useful life from beginning of Y3 is now another 5 years instead of 3 years. So new deprecation from Y3 is £15,800/5 = £3,160 per year.

Check:

Total cost £25,000
Total Dep'n after 7 years: £3,600x2 + £3160x5 = £23,000
Total Cost less Total Dep'n = £25,000 - £23,000 = £2,000 scrap value.

 

[goatinthehouse]

You just add the extra cost to the original cost, deduct the scrap value and depreciation suffered to the end of Year 2, and then divide what's left by new useful life remaining. So,

Cost: £20,000 + £5,000 = £25,000
Scrap value = £2,000
Value to depreciate = £23,000
less dep'n already suffered in Y1 & Y2 = £23,000 - £3,600 - £3,600 = £15,800
New useful life from beginning of Y3 is now another 5 years instead of 3 years. So new deprecation from Y3 is £15,800/5 = £3,160 per year.

Check:

Total cost £25,000
Total Dep'n after 7 years: £3,600x2 + £3160x5 = £23,000
Total Cost less Total Dep'n = £25,000 - £23,000 = £2,000 scrap value.

Thank you very much I really really deeply appreciate your reply . Thanks again. God bless you

 

[goatinthehouse]

You just add the extra cost to the original cost, deduct the scrap value and depreciation suffered to the end of Year 2, and then divide what's left by new useful life remaining. So,

Cost: £20,000 + £5,000 = £25,000
Scrap value = £2,000
Value to depreciate = £23,000
less dep'n already suffered in Y1 & Y2 = £23,000 - £3,600 - £3,600 = £15,800
New useful life from beginning of Y3 is now another 5 years instead of 3 years. So new deprecation from Y3 is £15,800/5 = £3,160 per year.

Check:

Total cost £25,000
Total Dep'n after 7 years: £3,600x2 + £3160x5 = £23,000
Total Cost less Total Dep'n = £25,000 - £23,000 = £2,000 scrap value.

My another question is that what happens if supposed there is a Discount of £1,000 given on Equipment to the company ? Do I deduct it and then that will be the Cost of Equipment recorded by the company ?

 

[Fidget]

Yes.

 

[goatinthehouse]

Yes.

Sorry to disturb you again but I have one more question ? Please do answer me. Why is it that depreciation values need to be estimated ? Whats are the reasons behind this ?

 

[Fidget]

It's because you're trying to predict the future, and the further into the future you try to look, the harder it is to predict. So all you can do is estimate based on what you currently know and then revise those estimates as things change.