The Peridot Company purchased machinery on January 2, 2016, for $800,000. A five-year life was estimatedand no residual value was anticipated. Peridot decided to use the straight-line depreciation method and recorded$160,000 in depreciation in 2016 and 2017. Early in 2018, the company revised the total estimated life of themachinery to eight years.Required:1. What type of change is this?2. Briefly describe the accounting treatment for this change.3. Determine depreciation for 2018.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The Peridot Company purchased machinery on January 2, 2016, for $800,000. A five-year life was estimated
and no residual value was anticipated. Peridot decided to use the
$160,000 in depreciation in 2016 and 2017. Early in 2018, the company revised the total estimated life of the
machinery to eight years.
Required:
1. What type of change is this?
2. Briefly describe the accounting treatment for this change.
3. Determine depreciation for 2018.
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