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Barkley Company has a piece of equipment that it has been depreciating for 3 years
Barkley Company has a piece of equipment that it has been depreciating for 3 years. The equipment originally was estimated to have a useful life of 8 years and at the beginning of the current year, Barkley determines that the equipment's life has been extended to 10 years. When Barkley calculates depreciation for the current year, how many years of life should be used to calculate the depreciation expense?
Expert Solution
Solution: 7 years
Explanation: A change in estimation of the useful life or residual value requires the company for the computation of a new annual amount of depreciation. The new depreciation amount will be computed by dividing the remaining book value of equipment at the beginning of the year of the change in estimation with the remaining years of life of the equipment. The equipment's new life is 10 years however the 3 years have already been depreciated, thus there will be remaining seven years over for which the equipment need to be depreciated.
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