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When there is a revised useful life on a depreciated asset due to more information being available

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When there is a revised useful life on a depreciated asset due to more information being available or because of a subsequent capital expenditure, which of the following is adjusted:

a. Depreciation per year is recalculated based on present value of the future cash flows expected to be received from the underlying asset.

b. Depreciation per year remains unadjusted.

c. Depreciation per year is recalculated based on the fair value of the asset.

d. Depreciation per year is recalculated based on the remaining years of useful life.

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Shristi Singh
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Fundamental Accounting Principles Volume I

Fundamental Accounting Principles Volume I

ISBN: 978-1260305821

16th Canadian edition

Authors: Kermit Larson, Tilly Jensen, Heidi Dieckmann

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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