Refer to Fernbank Farms. When calculating depreciation for 2013, the company's accountant should
A)add the $30,000 to the book value at December 31, 2012, and then allocate the revised depreciation basis over the remaining adjusted useful life of 5 years.
B)report the effect of the change in life as an expense on the income statement in 2011.
C)ignore the change in life on the original cost of $100,000 and depreciate the additional $30,000 cost separately over its useful life.
D)expense the $30,000 and depreciate the original cost of $100,000 over its revised estimated total live of 7 years.

Question

Quizplus · Accepted Answer

The best choice is to add the additional $30,000 to the book value at the end of the previous year and allocate the revised depreciation basis over the remaining adjusted useful life of 5 years. This method is known as the modified accelerated cost recovery system (MACRS) and is required by the IRS for tax purposes. It accounts for the additional cost by adjusting the depreciation amount over the remaining useful life of the asset, rather than treating it as a separate expense. This results in a more accurate reflection of the asset's value and useful life over time.