Lilly Company has been depreciating equipment for 10 years with an estimated total useful life of 25 years. Lilly has revised the estimated life to be only 17 years, with 7 years remaining in the asset's useful life. What is the appropriate action that Lilly should do now?
A) record a change in estimate by recomputing depreciation of prior periods and restating prior period financial results accordingly
B) record a change in estimate by recomputing depreciation of prior periods and presenting the net depreciation adjustment as a cumulative effect change in accounting principle in the current period
C) continue to depreciate the equipment over the original 25-year life
D) depreciate the remaining book value over the remaining 7 years of the asset's useful life

Question

Quizplus · Accepted Answer

When a company revises the estimated useful life of an asset, it should adjust future depreciation expense accordingly. This means depreciating the remaining book value over the newly estimated remaining useful life, which in this case is 7 years. Changes in depreciation estimates are accounted for prospectively, not by adjusting past financial statements.

Lilly Company Has Been Depreciating Equipment for 10 Years with an Estimated