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Saturn Company purchased a machine on January 1, 2018, for $900,000. At the date of acquisition,...

Saturn Company purchased a machine on January 1, 2018, for $900,000. At the date of acquisition, the machine had an estimated useful life of ten years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2022, Saturn determined that the machine had an estimated useful life of 15 years from the date of acquisition with no salvage. An accounting change was made in 2022 to reflect this additional information.

What is the amount of depreciation expense for the year ended December 31, 2022?

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Answer #1

When changes is made in assets life, it will affect the amount of depreciation in remaining years.

Old depreciation as per SLM (No salvage value) = 900,000 / 10 years = 90,000 per year

Till 2021 Depreciation (2018,2019,2020,2021) = 90,000 × 4 years = 360,000.

Book value as on 1 Jan 2022 = 540,000 (900,000 - 360,000)

Useful life changes to 15 years.

So remaining life = 15 - 4 years = 11 years

New Depreciation = 540,000 /11 years = $49090.91 per year

Amount of depreciation for Year ended 31st December 2022 = $49,090.91

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