Question

Explain how estimation of service lives can result in unrealistically high carrying values for fixed assets.

Short answer

Answer

Charges for depreciation and accumulated depreciation should be reduced.

Step-by-step solution

Meaning of Depletion 

The loss of natural resources as a result of access to them on a regular basis is called depletion.Hence, a company uses it when any kind of registered asset is involved, such as oil, coal, or gravel deposits.

Explaining the estimation of service lives can result in unrealistically high carrying values for fixed assets 

If the asset's estimated lifetime is excessively extended, the corporation will have to reduce depreciation costs and the accumulated depreciation. Furthermore, the carrying expenses will be high.

The carrying value of an asset is calculated using the formula:

Cost of the asset-Accumulated depreciation.