McDonald Company acquired machinery on January 1, 2009 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2014, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald?

Question

Quizplus · Accepted Answer

The change in estimated useful life of an asset is accounted for prospectively. This means that McDonald should adjust the depreciation expense for the future periods to reflect the new estimated remaining life. Therefore, future annual depreciation should be calculated based on one-sixth of the book value as of January 1, 2014, since the remaining life was revised to six years at that point.

McDonald Company Acquired Machinery on January 1, 2009 Which It