A company depreciates an item of machinery using the straight-line method. The asset was revalued upwards after two years of use. The remaining useful life of four years and the residual value are determined to remain the same. Which of the following relationships reflects the effect of the revaluation on the prospective depreciation of the machinery?

Question

Quizplus · Accepted Answer

The revaluation of the asset upwards will increase its carrying amount, which in turn will increase the amount to be depreciated over the remaining useful life. However, since the useful life and residual value have remained the same, the depreciation rate will remain the same. As a result, the annual depreciation expense will increase. Therefore, the effect of the revaluation on the prospective depreciation of the machinery is that the depreciation rate will remain the same, but the annual depreciation expense will be higher.

A Company Depreciates an Item of Machinery Using the Straight-Line