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GoodDay John,
Depreciation topic-
1 Jan 2000:
Machine bought for $70,000
estimated useful life: 7yrs
scrap value: $7,000.1 Jan 2002:
revised useful life to 3 yrs.Question 1: What are the accounting entries (adjustment) for accumulated depreciation a/c at yr ended 31 Dec 2002?
(I do not know what to do with the balance of previous yr2000 and yr 2001 accumulated depreciation.)
I know that the new depreciation expenses:
(New net book value – scrap value)/ remaining useful life.Thank you.
Up until 31 December 2001, depreciation will have been charged at 9,000 per year ((70000-7000)/7), and you do not change what has happened up until then. The balance on the accumulated depreciation account will be 18,000 (2 years at 9000).
You then recalculate the depreciation charge for the future. The carrying value is 52000 (70000-18000), the scrap value 7000, and the useful life 3 years. So the depreciation charge in future will be (52000-7000)/3 = 15000.
From then on you make the usual entry for depreciation at 15000 a year. You do not change the balances that were there at 31 December 2001 (you do not go back a change the previous depreciation)
So is it different compare to the revaluation situation?
Because during re-valuation of asset, the old balance of the accumulated depreciation is transfer to the revaluation a/c.And after the revaluation, the asset obtain new net book value and started with different depreciation expenses per year with (continue) the remaining useful life before re-valuation (not with the starting useful life before re-valuation).
Please correct me if i was wrong. Thanks again.
A company purchases a mashine with an expected useful life of 6 years for 9000. After twoyears of use management revised expected useful life to 8 years . The mashine Iis to be depreciated at 30 % per annum on the reducing balance basis. A full years depreciation Iis charged Iin the year of purchase with none in the year of sale. During year 4 sold for 3000. What is loss?
My question. Why we don’t take revising the useful life into account? Why we dont bother revising of useful life?
The useful life is only relevant if they are using straight line depreciation.
If using reducing balance the the percentage stays the same unless they decide to change the percentage.
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