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Hi John, can you help me with this, please? I hope I could explain my question below 🙂
In this question, when changing the way of depreciating, instead of using the 40% against the carrying value, it was only divided by the years left. In this case, I knew I was doing wrong because of the options given in the answer, but in the exam they wouldn’t give nice options, so my question is How am I supposed to know the way the straight line is been calculated if I’m given years of life and percentage for depreciation?
Baker Co purchased an asset for $100,000 on 1.1.X1. It had an estimated useful life of 5 years and it was depreciated using the reducing balance method at a rate of 40%. On 1.1.X3 it was decided to change the method to straight line. What is the carrying amount of the asset at 31.12.X3?
ANS: $24,000The question says it was depreciated using reducing balance, and so initially the useful life is irrelevant.
It only becomes relevant when they change the method to straight line.So for X1 and X2 it is reducing balance at 40%, which gives a carrying value at the end of X2 of 36,000.
Then they change to straight line, and since there are only 3 years life left it means the depreciation will then be 12,000 a year.
So the carrying value after one more year falls to 24,000.
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