Practice Question
The depreciation expense for a piece of machinery was calculated to be $10,000 per year over a 10-year useful life. If the company decides to change its useful life to 15 years after 5 years, what will be the new annual depreciation expense?
New Annual Depreciation Expense: \$5,000
Step 1: Calculate total depreciation taken:
\[ 10{,}000 \times 5 = 50{,}000 \]
Step 2: Remaining book value = \$100,000 (initial) − \$50,000 (depreciation) = \$50,000.
Step 3: Adjusted useful life = 15 total years − 5 years already used = 10 years remaining.
\[ \text{New Depreciation} = \frac{50{,}000}{10} = \boxed{5{,}000} \]
The new annual depreciation expense is calculated over the remaining useful life using the updated book value.