Ron's Quik Shop bought machinery for $25,000 on January 1, 2010. Ron estimated the useful life to be 5 years with no residual value, and the straight-line method of depreciation will be used. On January 1, 2011, Ron decides that the business will use the machinery for a total of 6 years. What is the revised depreciation expense for 2011?

Question

Ron's Quik Shop bought machinery for $25,000 on January 1, 2010. Ron estimated the useful life to be 5 years with no residual value, and the straight-line method of depreciation will be used. On January 1, 2011, Ron decides that the business will use the  machinery for a total of 6 years. What is the revised depreciation expense for 2011?

oobleck · Accepted Answer

I'm no tax expert, but it appears that Ron will allow 1/5 of $25000 = $5000 in 2010 Then, by extending the life to 6 years, he still has 5 years of life in 2011, so he would start using a yearly amount of 1/5 of $20000 = $4000 each year after that.