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When useful life of an asset is changed at year end, Depreciation for thé ending year is calculated by using the new life +1.
Q1: Is it that if any of factors in calculating depreciation Eg Useful life, Scrap value, carrying amount or revaluation changes, then Depreciation for the ending year is recalculated ?
Q2: If such factors change before year end, do we now have to recalculate depreciation for yet again a year back or just months passed ? Actually what among the factors can be changed before year end ?
I think you are understanding correctly, but to make sure what is happening is this:
Suppose you are calculating the depreciation for the year ended 31 December 2017 and you then decide the asset will last a further 3 years. It would be silly to calculate the depreciation on the old basis when you know it is only going to last 3 more years, so when you calculate it you include the year to 31 December 2017 and so depreciate over 4 years.
And, yes – if any useful life or scrap value changes then we need to change the depreciation charge. (The carrying amount is not something that needs changing for – it happens automatically. Revaluations are dealt with separately in the normal way.)If factors change before the year end, that what we would do depends on the company’s policy – there is no rule (just as it is company’s own policy as to whether we depreciate monthly or a full year in the year of purchase). In the exam it is almost certain that this won’t apply, but if it did then the question would have to tell you what the company had decided to do.
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