Question

If revising depreciation, how is it calculated?

Answer 1

--When revising Depreciation, based on revised estimates [revised useful life or revised salvage value], following steps would come in handy.

--Step 1: Calculate Accumulated Depreciation till date of change in estimate, based on prior estimates.
--Step 2: Deduct Step 1 Accumulated Depreciation from the Original Cost, and find the BOOK VALUE at the time of revision.
--Step 3: Apply the new revisions (new life, or new salvage value) for calculating revised depreciation.

--Example

A	Original cost	$                71,200
B	Original salvage value	$                15,200
C = A - B	Original depreciable base	$                56,000
D	Original expected life [years]	5
E = C/D	Annual 12 month depreciation	$                11,200
	Depreciation for:
	2017'	$                11,200
	2018'	$                11,200
	2019'	$                11,200
F	Total Accumulated Depreciation till estimates changed	$                33,600
G = A - F	Book Value at the time of change of estimate	$                37,600
H	New salvage value	$                   8,000
I = G - H	New depreciable base	$                29,600
J	New expected life [years]	7
K	Life already expired	3
L = J - K	Remaining life	4
M = I/L	Revised depreciation expense from 2020	$                   7,400