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hi sir ,
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 $115,000ans is C . why not D . 31dec 20×3 from tht date only expected to be three more years , we should count from 1 nov 20×3 ??
When you calculate the deprecation at 31 Dec X3 you use the new information.
It has last been calculated on 31 Dec X2 (using the original information) and so when you calculate for X3 there are 4 years of life since it was last calculated.(November has nothing to do with it 🙂 )
Hi John,
Could you please explain why the answer is C) ($107,500), and why are you mentioning the November here? Am I missing any information here?
Thank you in advance!
If you read the earlier posts properly you will see that I mentioned November because the original question asked about November! I said that November was not relevant!!
As at 31 December 2002, the net book value (carrying value) was 160,000 – (2 x (160,000 – 40,000) / 8) = 130,000.
The depreciation for 2003 = (130,000 – 40,000) / 4 = 22,500.
Therefore the net book value as at 31 Dec 2003 = 130,000 – 22,500 = 107,500
Just wondered why the residual value has come off the new depreciation cost as it was accounted for originally?
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