A plant asset was purchased on January 1 for Sh 600,000 with an estimated salvage value of Sh 100,000 at the end of its useful life. The current year's Depreciation Expense is Sh 50,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is Sh 250,000. The remaining useful life of the plant asset is __ years. Hint: Write your answer as an integer, e.g 1, 2, 3, etc. Answer:
Question
A plant asset was purchased on January 1 for Sh 600,000 with an estimated salvage value of Sh 100,000 at the end of its useful life. The current year's Depreciation Expense is Sh 50,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is Sh 250,000. The remaining useful life of the plant asset is __ years. Hint: Write your answer as an integer, e.g 1, 2, 3, etc.
Answer:
Solution
To calculate the remaining useful life of the plant asset, we first need to understand how depreciation works.
Depreciation is the process of allocating the cost of a plant asset over its useful life in a systematic and rational manner. In this case, the depreciation method used is the straight-line method, which means the asset's value is depreciated evenly over its useful life.
The cost of the asset is Sh 600,000 and the salvage value (the estimated value of the asset at the end of its useful life) is Sh 100,000. Therefore, the depreciable cost (the total amount that can be depreciated over the asset's life) is Sh 500,000 (Sh 600,000 - Sh 100,000).
The annual depreciation expense is Sh 50,000. This means that each year, Sh 50,000 of the asset's value is depreciated.
The accumulated depreciation (the total depreciation that has been recorded for an asset up to a specific date) is Sh 250,000. This means that Sh 250,000 of the asset's value has already been depreciated.
To find the remaining useful life of the asset, we need to calculate how much more the asset can be depreciated. We do this by subtracting the accumulated depreciation from the depreciable cost (Sh 500,000 - Sh 250,000 = Sh 250,000).
Then, we divide this remaining depreciable cost by the annual depreciation expense (Sh 250,000 / Sh 50,000).
So, the remaining useful life of the plant asset is 5 years.
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