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What is the effect of changing the estimated useful life of an asset on its depr

Practice Questions

Q1
What is the effect of changing the estimated useful life of an asset on its depreciation expense?
  1. Increases Depreciation Expense
  2. Decreases Depreciation Expense
  3. No Effect
  4. Depends on the Method Used

Questions & Step-by-Step Solutions

What is the effect of changing the estimated useful life of an asset on its depreciation expense?
  • Step 1: Understand what depreciation is. Depreciation is the process of spreading the cost of an asset over its useful life.
  • Step 2: Know what estimated useful life means. This is the period during which the asset is expected to be useful to the business.
  • Step 3: Realize that changing the estimated useful life means you are changing how long you think the asset will last.
  • Step 4: If you increase the estimated useful life, the annual depreciation expense will decrease because the cost is spread over a longer time.
  • Step 5: If you decrease the estimated useful life, the annual depreciation expense will increase because the cost is spread over a shorter time.
  • Step 6: Remember that the total depreciation over the asset's life remains the same; only the annual expense changes.
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