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Hi Sir,
I don’t understand this question. I have the answer but I don’t understand why the remaining life at 1 Jan 2003 is 4 years?
A business purchased an asset on 1 Jan 20X1 at a cost of $160,000. The asset had an expected life of 8years and a residual value of $40,000. Straight line method is used to measure depreciation. The financial year ends on 31 Dec.
At 31 Dec 20X3 the estimated remaining life of the asset from that date is now expected to be only 3 more years, but the residual value remains unchanged.
What will be the net book value of the asset as at 31 December 20X3, for inclusion in the statement of financial position?
Thank you
This is something to watch out for, because it does always look strange at first glance.
They are calculating the depreciation for the year ended 31 December 20X3.
Before the calculate it, they estimate that there are 3 more years remaining after X3.
So it would be silly for them to calculate the depreciation in the old way (i.e. over 8 years) when they know there are going to be 3 extra years after X3.So when they calculate it for the year X3, they are working on the year X3 plus the 3 more years afterwards, which is 4 years in total.
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