Earnings effects of changes in useful lives and salvage values
Assume that Major Motors Corporation, a large automobile manufacturer, reported in a recent annual report to shareholders that buildings had an original cost of $4,694,000,000. 1. Major Motors uses the straight line depreciaiton method to depreciate the buildings over a useful life of 34 years.
2. Assume that the ratio of end-of-year accumulated depreciation on the buildings to their depreciable cost is 35.3%. This implies that the buildings, on average, are about 12 years old. Assume that Major Motors depreciates them to a salvage value of 5% of their original cost.
