Barkley Company has a piece of equipment that it has been depreciating for 3 years. The equipment originally was estimated to have a useful life of 8 years and at the beginning of the current year, Barkley determines that the equipment's life has been extended to 10 years. When Barkley calculates depreciation for the current year, how many years of life should be used to calculate the depreciation expense

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Business

Draven Grant

28 December, 21:54

Barkley Company has a piece of equipment that it has been depreciating for 3 years. The equipment originally was estimated to have a useful life of 8 years and at the beginning of the current year, Barkley determines that the equipment's life has been extended to 10 years. When Barkley calculates depreciation for the current year, how many years of life should be used to calculate the depreciation expense

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Alonso Mills · Answer 1

Barkley Company

Change of Useful Life of Equipment:

Depreciation calculation should now be based on 7 years (10 - 3).

Explanation:

The useful life of an asset is an accounting estimate of the number of years it is likely to remain in service for the purpose of generating cost-effective revenue for the entity.

As an estimate, it is based on judgement, and can be changed to reflect reality. When a change in the useful life is considered necessary, the new useful life is determined and the number of years the asset had been used is subtracted from the new estimated useful life to determine the remaining useful life of the asset. This remaining useful life is now used to calculate the depreciation expense.

Assuming the entity uses the straight-line method, the book value less salvage value, if any, is divided by the new useful life to determine the depreciation charge for each remaining year.