A company has a building that it originally bought for $500,000. As of 12/31/2012, there is $100,000 of Accumulated Depreciation on the building (it was being straight-line depreciated over 20 years with $100,000 salvage value). On 1/1/2013, the company decides to change the remaining useful life to 5 years (starting now) with a $200,000 salvage value.
The depreciation calculation uses the net book value instead of original cost when the parameters are changed. Annual Depreciation = (Net Book Value – Salvage Value) / Remaining Life = (400,000 – 200,000)/5 = 40,000
