A plant asset was purchased on January 1 for P40,000 with an estimated salvage value of P8,000 at the end of its useful life. The current year's Depreciation Expense is P4,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is P20,000. The remaining useful life of the plant asset is.
Question
A plant asset was purchased on January 1 for P40,000 with an estimated salvage value of P8,000 at the end of its useful life. The current year's Depreciation Expense is P4,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is P20,000. The remaining useful life of the plant asset is.
Solution
To calculate the remaining useful life of the plant asset, we first need to understand how the depreciation expense is calculated.
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The cost of the asset is P40,000 and the salvage value is P8,000. The depreciable amount is the cost of the asset minus its salvage value. So, P40,000 - P8,000 = P32,000. This is the total amount that will be depreciated over the asset's useful life.
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The annual depreciation expense is P4,000. This is calculated by dividing the depreciable amount by the useful life of the asset. So, P32,000 / P4,000 = 8 years. This is the total useful life of the asset.
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The accumulated depreciation at the end of the year is P20,000. This is the total amount that has been depreciated from the asset's value so far.
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To find the remaining useful life of the asset, we subtract the years that have already passed (which we find by dividing the accumulated depreciation by the annual depreciation expense) from the total useful life. So, 8 years - (P20,000 / P4,000) = 8 years - 5 years = 3 years.
Therefore, the remaining useful life of the plant asset is 3 years.
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