WZ acquired some machinery on January 2, 20x1.WZ used straight-line depreciation with an estimated life of 15 years with no residual value.On January 1, 20x6, WZ estimated that the remaining life of this machinery was 6 years with no residual value.How should this change be accounted for by WZ?

Question

Quizplus · Accepted Answer

When a change in the estimated useful life of an asset occurs, the company should account for it prospectively. This means adjusting future depreciation expense based on the new estimate. The correct approach is to divide the book value as of the date of the change in estimate (January 1, 20x6) by the new estimated remaining life (6 years), without altering the depreciation method or attempting to retroactively change depreciation for past years.

WZ Acquired Some Machinery on January 2, 20x1