When a firm changes only the estimated residual value of equipment:

Question

Quizplus · Accepted Answer

When a firm changes only the estimated residual value of a piece of equipment, the correct approach is to adjust the remaining depreciation charges. This means the remaining book value (original cost minus accumulated depreciation to date) less the new residual value becomes the basis for the depreciation expense calculation over the remaining useful life of the asset. This adjustment ensures that the depreciation expense is spread evenly over the asset's remaining useful life, reflecting the updated estimate of the asset's residual value.

When a Firm Changes Only the Estimated Residual Value of Equipment