When an Asset's Estimated Useful Life and Residual Value Turn

question 30

Multiple Choice

When an asset's estimated useful life and residual value turn out to be materially incorrect and the asset has not reached the end of its useful life, the correct procedure to follow is:

• A) re-issue corrected financial statements for all prior years.
• B) re-issue corrected financial statements for only the most recent three years.
• C) ignore the problem since estimates are not expected to be exact anyway.
• D) allocate the remaining depreciable amount over the remaining useful life.

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Definitions:

Conditional Estate

A type of property ownership that is contingent upon certain conditions, which if not met, can result in the loss of property rights.

Life Estate

A legal arrangement where an individual has the right to use and benefit from a property for the duration of their life, but does not own the property outright.

Future Interest

A legal right to property or asset ownership that will begin in the future, rather than immediate possession.

Life Estate

A property interest that lasts for the life of the holder, after which the property reverts to the grantor or a specified remainderman.