Coronado's Quik Shop bought machinery for $90000 on January 1, 2017. Coronado estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2018, Coronado decides that the business will use the machinery for a total of 6 years. What is the revised depreciation expense for 2018?

Revised depreciation expense for 2018 = $14,400

Explanation:

Cost of machinery = $90,000

Salvage value = $0

Expected life = 5 years

Date of purchase of machinery = 1 January, 2017

Depreciation for the year 2017 = ($90,000 - $0) / 5 = $18,000 per year under straight line method.

Book value at end of year 1 = $90,000 - $18,000 = $72,000

Now on 1 Jan 2018 company decides to use the machinery for total of 6 years

That is time period left = 6 years - Already used 1 year = 5 years

Depreciation = $72,000/5 years = $14,400 per year as life from now is 5 years for which depreciation will be as follows.

Note: No reverse adjustment is possible in previous year financial statements.

Revised depreciation expense for 2018 = $14,400