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A machine was purchased for $100 000 on 1st Jan 20X1 and was expected to have a useful life of 10 years. After 3 years management revised their expectation of the remaining useful life to 20 years. The business depreciates machines using the straight line method. What is the carrying value of machine at 31st December 2005?
Answer is $63000 as Carrying value at the end of
the year 3: 100 000 – ((100 000/10)*3) = $ 70 000
the year 5: 70 000 – ((70 000/20)*2) = $63000However, I thought that when you increase the expected useful life you remove the previous years from future calculations. As in, 20 – 3 = 17. So it’ll be (70000/17)*2
Thank you so much 😀
No.
You only remove the previous years if there is no change in the useful life! If the useful life was staying as before then there would only be 7 years left to depreciate.
Here, the question says the remaining useful life is revised to 20 years. It is the word remaining that is important.
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