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A business purchased an asset on 1 January 20X1 at a cost of $160,000. The asset had an expected
life of eight years and a residual value of $40,000. 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 $115,000Answer is C
I read the post by other students on the same question and I understood why we apply the new changes from 20×3 and not 20×4. We do so because the depreciation are year end adjustment and calculated at year end and since we have new info available, we use that to calculate the depreciation for the year.
I’ve also understood why 4 years are being used instead of 3 year as remaining useful life because the question says 3 years are the remaining useful life the 31 dec 20×3.
What I don’t understand is why they have deducted the same residual value of 40000 again in the new depreciation calculation when they were already deducted in the year of purchase. Plus, the question also mentions that the residual value has not changed just the remaining useful life. Please help.
I’m using bpp exam kit from 2020.
Fresia bought a printing machine for her business on 1 April 20X5. It cost $18,000 and Fresia decided to depreciate it over ten years with a zero residual value. Fresia charges depreciation on a pro-rata basis. On 31 December 20X8 Fresia decided that the useful life of the printing machine had reduced to six years in total from the original ten years.
What is the depreciation charge for the year ended 31 December 20X9?
A.$1,800
B.$5,000
C.$1,875
D.$5,400Answer is 500 B
This question is from the ACCA studyhub. There appears to be in contradiction between the how dep is to be calculated in the above BPP question and ACCA StudyHub.
In this question, the change in the useful life is applied after 30 december 20×8 which is the date at which the company uncovered this new info on the change in the useful life of the assets.
Have they applied the change from next year (20×9) because the company is using the pro-rata basis which mean dep is calculated month (jan to dec 20×8 using the old useful life) wise rather than at the year end when we got the new info?
If the company were using straight line method, would they have calculated dep for 31 December 20×8 using the new remaining useful life of (2.25)?
First question:
The residual value is still relevant because with straight line depreciation the charge each year should be such as to being the written down value down to the residual value at the expected end of life.
Second question:
Strictly they should have calculated the depreciation for 20X8 using the new life – the fact that they are using proportional depreciation does not mean that the logic changes.
In exam, which method are we supposed to follow? the way depreciation is applied in BPP question or ACCA studyhub question?
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