- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
I confused when I compared new example in your revision kit.
there is an example that a company purchase an asset 1 Jan 2000 year at cost 70000$ and residual value 7000$ and useful life 7 years. after 2 years it has a remain useful life 3 years. and 31 Dec 2003 it was sold at 30000$generally, this examples is solved like this
70000-7000/7 years = 9000(per annum depreciation)
after 2 years ac. depreciation will be 18000 and carrying value will be 52000$. i didn’t understand that why in this example they deducted residual value twice. we generally solve this 52000/3years
but in this examples they deducted 52000-7000/3 years
why they deducted residual value twice?They are not deducting it twice!
There were deducting 9,000 a year so as to bring the value down to 7,000 at the end of 7 years.
Now they are deducting 15,000 a year ((52000 – 7000)/3) to still bring the value down to 7,000 but at the end of just 3 more years.
I find a further example
Company purchased an asset 1 Jan 2001 at a cost 160000$.excepted useful life 8 years and residual value 40000$. straight line used and financial year ended 31 Dec.
at 31 Dec 2003 remaining useful life now is expected to be only 3 years but residual value unchanged. they ask what will be net book value at 31 Dec 2003?
I solved this like that
160000-40000/8=15000(annum depreciation)
1 Jan- 31 Dec there are 3 years. and it will be 45000 Accumulated depreciation.
160000-45000=105000
but they take into consideration of 2003 year. and calculate 4 years depreciation.????
160000-30000=130000$-40000/4 years= 22500
is this true according to IFRS that taking the whole year in the changing useful life?It is because we calculate the depreciation at the end of the year (here is 31 December 2003) and when we calculate it we use whatever new information we have. Before we do the calculation, there will have been 2 years deprecation (2001 and 2002) and so when we calculate as at the end of 2003, since we know then that there will be 3 years left, we use that fact when we calculate for 2003.
(IFRS 16 does not tell us how to calculate depreciation – it lets us do it in whatever way we feel is most sensible. But we should base it on the information we have when we do the calculation.)
- You must be logged in to reply to this topic.