For a company using the straight-line method of depreciation that changes the estimated useful life from 20 years to 15 years as at the beginning of the year, the accountant should do (or not do)the following:
A)Compute current year depreciation as (carrying amount - residual value)divided by 20 years.
B)Adjust prior year's depreciation.
C)Do not adjust the amount of accumulated depreciation as at the beginning of the year.
D)Compute current year depreciation as (carrying amount)× 15/20.

Question

Quizplus · Accepted Answer

DWhen a company changes the estimated useful life of an asset, it does not adjust prior year's depreciation (eliminating option B) but rather adjusts the depreciation expense going forward. The correct method is to compute the current year depreciation based on the new estimated useful life, which means recalculating the depreciation expense for the remaining life of the asset, not by applying a simple fraction like 15/20 to the carrying amount (making option D incorrect). The correct approach is to spread the remaining carrying amount (minus any residual value) over the new remaining useful life (not mentioned directly but implied as the correct method, making option A incorrect). Option C is correct because the accumulated depreciation as at the beginning of the year remains unchanged; only the future depreciation calculations are adjusted to reflect the new useful life.

For a Company Using the Straight-Line Method of Depreciation That