What is the effect on the income statement of stimating a useful life of ten years rather than 15 years for projection equipment?
There are several depreciation methods that can be used so the answer to your question is really dependent on what method you use. However, let’s take an easy depreciation method like straight line. The straight line method basically takes the total cost of the asset and divides it evenly over the useful life of the asset. Using your two examples of 10 years vs. 15 years and assuming your projection equipment cost $30,000, here is what your depreciation expense would be:
$30,000 / 10 years = $3,000 per year
$30,000 / 15 years = $2,000 per year
To summarize, your depreciation expense would be higher for a shorter period of time if you have a useful life of 10 years; and $1,000 lower if you use the 15 year useful life; but it would be for 15 years so a longer period. Higher expenses reduce the bottom line income on your profit and loss statement and lower expenses increase the bottom line income on your profit and loss statement.
We have several articles that discuss what depreciation is, the various methods and how to calculate your depreciation. I have included links to those articles below:
All the Best-
Crystalynn Shelton, CPA
315 Madison Avenue, 24th Floor
New York, NY 10017
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