11RQ - Horngren'S Financial And Managerial Accounting

Question

If a business changes the estimated useful life or estimated residual value of a plant asset, what must the business do in regard to depreciation expense?

Step-by-Step Solution

Answer

While changing the estimated life and residual value the business recalculate the depreciation expenses as per new estimates.

Estimate useful life

The estimated useful life of an asset is defined as the expected life in terms of years, months, or number of units to be produced.

Steps taken by entity in case of change in estimated useful life and residual value

If the business changes the estimated useful or estimated residual value of plant assets, the business should record depreciation as per changes in estimated useful life and residual value.