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Sir, in the example, it says that on 31 Dec 2014, the estimated useful life of the asset is 5 years.
Then in that case, shouldn’t we deduct the depreciation for 2 years (2.5 p.a.) first and then spread it over the useful life of the asset of 5 years? (As the standard says that the useful life should be reviewed once every year)
Thanks
Sir, as I have learnt in F7, the change in accounting estimate affects the current and future years, therefore, the asset would be depreciated for 2 years to 31 Dec 2013 and then from 1 Jan 2014, the carrying value ( 25- (2.5*2)) 20 will be divided over 5 years. Thus, the asset value as at 31 Dec 2015 will be (20-(20/5*2) 12 and the depreciation charge would be 4.
Is my calculation correct? Am I missing something here?
Thanks
Hi,
Have you watched the accompanying video? It is fully explained there. I think the key thing that you are missing is that the change in estimate takes place at the end of Dec’14, so we will have depreciated the asset by 3 years, before then depreciating it over the stated remaining life of 5 years.
Thanks
Yes sir, but the accounting estimate for useful life and the percentage change for the depreciation will be determined and reviewed every financial year end. And the estimate will affect the current and future periods (since its applied prospectively) (Year 2014 and onwards).
So wont we decide the depreciation at year end?
It doesn’t say anything in the question about any other years. It says that at the end of the year the life was changed, not at the start of the year, and so full year of old depreciation will have already been charged.
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So, if the life of the asset was changed in june and the year end was december.
Then, will we charge the half year’s old depreciation and half year’s new depreciation for arriving at the total depreciation charge?
Thanks
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