A machine originally had an estimated useful life of 6 years, but after 2 comple

Question

A machine originally had an estimated useful life of 6 years, but after 2 complete years, it was decided that the original estimate of useful life should have been 11 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

A machine originally had an estimated useful life of 6 years, but after 2 complete years, it was decided that the original estimate of useful life should have been 11 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

Explanation / Answer

Determination of useful life in a financial statement is also a type of accounting estimate.

Accounting Estimates involve management's judgment of expected future benefits and obligations relating to assets and liabilities based on information that are available on the reporting date.

Estimates must be revised when new information becomes available which indicates a change in circumstances upon which the estimates were formed.

Change in Accounting estimates must be account for in books Prospectively & no Retrospective adjustment is done in the books of accounts.

So  the remaining cost to be depreciated should be allocated over the remaining period of time is correct treatment done. As this is also a kind of prospective treatment.

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