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Nanki Corporation purchased equipment on January 1, 2019, for $647,000. In 2019 and 2020, Nanki depreciated...

Nanki Corporation purchased equipment on January 1, 2019, for $647,000. In 2019 and 2020, Nanki depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $15,000 residual value. In 2021, due to changes in technology, Nanki revised the useful life to a total of four years with no residual value. What depreciation would Nanki record for the year 2021 on this equipment?

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Answer #1

Depreciation for the year 2019 & 2020 = (647000-15000)/8 = 79,000

Book value as on jan 2021 = 647,000-79,000-79,000 = $ 489,000

The remaining useful life as on jan 2021 in actual is 6 years

But there is a revision in useful life on jan,2021 which is a change in accounting estimate.

Any change in Accounting estimate has to be done prospective accounting.

Therefore, the book value as on jan,2021 has to be depreciated over the resvised useful life of the equipment

Depreciation for the year 2021 = 489000/4 = $ 122,250

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