LO.2 ACCOUNTING FOR TANGIBLE ASSETS Change of Estimates Depreciation involves estimates Estimates may be changed Apply the change to the current period and future periods Example ABC Co. purchased an equipment on July 13, 2019 at $85,000. The company paid $500 for transportation cost. The equipment was estimated to have a residual value of $1,000 and an estimated useful life of 10 year. ABC uses straight line depreciation for all its assets. On December 31, 2020, the management estimated the remaining useful life of the equipment to be 5 years. Calculate the depreciation expense for 2020. Net Book Value = $85,500 $4,225 = $81,275 1? Depreciable Amount = $81,275 $1,000 = $80,275 Depreciation Expense = $80,275 / 5 = $16,055