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Hello,
I’d really appreciate some guidance on the question and answer below on depreciation. I cant figure out how did they calculate the useful life?
Thanks
On 1 January 20X8, Wootton has a building in its books which cost $380,000 with a carrying amount of $260,000. On 1 July 20X8, the asset was valued at $450,000 and Wootton wishes to include that valuation in its books. Wootton’s accounting policy is to depreciate buildings at the rate of 3% on a straight-line basis.
What was depreciation charge included in the statement of profit or loss for the year ended 31 December 20X8?
Answer:
Depreciation charge 1 Jan – 30 June: 3% of $380,000 × 6/12 = $5,700
Accumulated depreciation at date of revaluation = $120,000 + $5,700 = $125,700 – i.e. 11.03 years have passed.Total estimated useful life is 33.33 years, with a remaining estimated useful life of 22.3 years.
Thus depreciation for second half of year = $450,000 / 22.3 years × 6/12 = $10,090.
The total depreciation charge for the year = $5,700 + $10,090 = $15,700On initial purchase, with depreciation at 3% straight line, there is an estimated life of 33.33 years ie 33 years and 4 months
Annual depreciation is $380,000 x 3% = $11,400
On 1 January, the building had accumulated depreciation in the amount of $120,000 which, at $11,400 per annum, represents 10.53 years ($120,000 / $11,400)
It started life with an estimated useful life of 33.33 years. It has accumulated 10.53 years of accumulated depreciation as at the start of the year with a further 6 months from 1 January to date of revaluation 30 June giving us 11.03 years of life used up and an adjusted accumulated depreciation figure of $125,700 ($120,000 + $5,700 for the 6 months up to revaluation date)
With 11.03 years already depreciated, and an estimated 33.33 useful years originally estimated, there remains 22.3 years of remaining useful life (33.33 – 11.03)
With effect from 1 July, we now are going to depreciate over the remaining 22.3 years the revised amount of $450,000
Better?
Hi can some help me how to calculate the depreciation charge
For the financial year ending 31 May, 20X9Question
1. John co owns a non-current asset which cost $75,000 on 1 June 20X6. It had a useful of 10 years and an expected residual value of $5,000. Non-current assets are depreciated using the straight line method.
On 1 June 20X8, John co estimated that the remaining life of the asset was now only five (5) years with an expected residual value of $3,000
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