On January 1, five years ago, a business acquired an asset with a 35 year estimated...

On January 1, five years ago, a business acquired an asset with a 35 year estimated useful life. On January 1 of this year, a review of estimated useful life determined that the estimated life should be 45 more years. as a result of the review, and in compliance with GAAP,

A- The original cost should be amortized over the next 45 years

B- the unamortized cost should be amortized over the next 40 years

C- the unamortized cost should be amortized over the next 30 years

D-the unamortized cost should be amortized over the next 45 years

Expert Solution

Amortization of original cost of Asset depends on estimation of useful life of an asset, other factors . if there is any change or revision in estimation of useful life of an asset , the entity will have to incorporate such change by in prospective manner I,e the change will be implemented from the date of change or revision.

In above case on january 1, five years ago, the business acquired as asset with 35 year estimated useful life.

On january 1 after five years of purchase of an asset , it has reviewed the estimated useful life of an asset that useful life of asset should be 45 more years.

business have to incorporate such change in prospective manner I'e change should be incorporated from january 1 of this year .and the amortization should be made on the basis of revised useful life on asset and it should be provided on remaining unamortized cost of an asset on january 1 of this year.

I'e the business should provide amortization on remaining unamortized cost of an asset the basis revised useful life ( 45 years )

therefore Option D is correct - the unamortized cost should be amortized over the next 45 years .

ekkarill92 answered 2 years ago

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