Myers Company acquired machinery on January 1, 2014 which it depreciated under the straight-line method with an estimated life of fifteen years and no residual value. On January 1, 2019, Myers estimated that the remaining life of this machinery was six years with no residual value. How should this change be accounted for by Myers?

Question

Quizplus · Accepted Answer

The change in the estimated remaining life of the machinery should be accounted for by adjusting future annual depreciation expense. The remaining book value of the machinery on January 1, 2019 should be divided by the remaining life of six years to arrive at the new annual depreciation expense. This is not a prior period adjustment because there were no errors or omissions made in prior periods, and it is not a change in accounting principle because the straight-line method is still being used. Continuing to depreciate the machinery over the original fifteen year life would not accurately reflect the estimated remaining useful life of the asset.

Myers Company Acquired Machinery on January 1, 2014 Which It