Question

jun company purchased a machine on january 1, 20x6, for $900,000. at the date of acquisition, the machine had an estimated useful life of six years with no salvage. the machine is being depreciated on a straight-line basis. on january 1, 20x9, jun determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. an accounting change was made in 20x9 to reflect this additional information. what should be reported in jun's income statement for the year ended december 31, 20x9, as the cumulative effect on prior years of changing the estimated useful life of the machine?

Answer 1

A depreciation expense of $60,000 should be reported in Jun's income statement.

Before calculating the depreciation expense, the depreciable quantity must be determined. It is determined as follows:

Depreciable Amount is equal to Cost minus Salvage Value.

Divide the depreciable amount by the projected useful life to determine the depreciation expense. Depreciation costs are calculated by dividing depreciable costs by anticipated useful lives. This is the formula to be used. We will calculate the annual depreciation expense and the overall depreciation using a six-year useful life as of December 31. The table below displays the outcomes.

i) Cost 600,000

Salvage Value 0

Depreciable Cost 600,000

Estimated Useful Life 6

Depreciation Expense 100,000

Years Lapsed (2012-2014) 3

Accumulated Depreciation 300,000

ii) Cost 600,000

Accumulated Depreciation 300,000

Net Book Value 300,000

Salvage Value 0

Depreciable Cost 300,000

Remaining Useful Life 5

Depreciation Expense 60,000

Hence, 2015's depreciation expense is $60,000

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