Calculate the book value of the equipment after the upgrade

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Reference no: EM132745692

Question - On 10 January 2017, Rainy Company purchased $1,000,000 equipment, with estimated useful life of 120 months and no residual value. Straight-line method was adopted. For partial years, depreciation in the year of acquisition/upgrade/disposal is recorded to the nearest whole month. The Company records annual depreciation expense at the year-end date, 31 December.

On 28 June 2019, the company spent $100,000 to upgrade the above equipment in order to enhance the capacity. The company paid $5,000 to employ a technician to upgrade the equipment and paid $1,000 interest to finance the upgrade. The company decided to extend the estimated useful life to 150 months and revise the estimated residual value to $75,000 on the same date.

Required -

(a) Calculate the book value of the equipment after the upgrade. Show your workings.

(b) Calculate the annual depreciation expense of the equipment in 2019. Show your  workings.

Reference no: EM132745692

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