Change in Estimated Useful Life Goff Corporation purchased a machine on January

Question

Change in Estimated Useful Life

Goff Corporation purchased a machine on January 1, 2008, for $250,000. At the date of acquisition, the machine had an estimated useful life of 20 years with no salvage value. The machine is being depreciated on a straight-line basis. On January 1, 2013, as a result of Goff's experience with the machine, it was decided that the machine had an estimated useful life of 15 years from the date of acquisition. What is the amount of depreciation expense on this machine in 2013 using a new annual depreciation charge for the remaining 10 years?

Explanation / Answer

Depreciation for 20 years estimate using straight line method = 250000/20 i.e 12500

Depreciation booked for 5 years = 12500*5 i.e 62500

Depreciation for 15 years estimete using straight line method = 250000/15 i.e 16667

Depreciation for 5 years = 16667*5 i.e 83333

Deprecition to be booked in 2013 = (83333-62500)+16667 i.e 37500

2) Depreciation on machine if life estimated to be 10 years

=( ( 250000/10*5)-62500)+250000/10

= 87500

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