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(Question 34.6 F3 Bpp revision kit) A business purchased an asset on 1 January 20X1 at a cost of 160,000. The straight line method is used to measure depreciation. the financial year ends on 31 December.
At 31 December 20X3, the estimated remaining life of the asset from that date is now expected to be only three more years, but the residual value is unchanged.
What will be the net book value of the asset as at 31 December 20X3, for inclusion in the statement of financial position?
A $97,500
B $100,000
C $107,500
D $115,000———————————————————————————————————————-
Sir, the answer given in the book back is ‘C’ but I couldn’t figure out how it has come?
It would help in future is you would type out the whole of the question 🙂
What you did not type out is that the original expected life was 8 years, and the residual value was $40,000.
Therefore the depreciation originally would have been (160,000 – 40,000) / 8 = 15,000 per year.
So at the 31 December 20X2, there would have been 2 years depreciation of 15,000 per year and so the NBV would have been 160,000 – 30,000 = 130,000.
When we come to calculate the depreciation for 20X3, we then know that it will last another three years. So we use that knowledge when we calculate the depreciation. We have 20X3 and another 3 years, so 4 years in total.
So the depreciation for 20X3 = (130,000 – 40,000) / 4 = 22,500 per year.
So the NBV at the end of X3 is 130,000 – 22,500 = $107,500
I was a bit confused in the financial year 20X3, now all that is cleared.
Thank you, sir.
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