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Hi Sir,
In Example 1 of chapter 5 3rd topic Depreciation, shouldn’t we transfer the reduction in depreciation amount taken to P&L on 31st December? Because due to change in estimates of useful life depreciation amount is reduced from 7,500 to 3,500.
Hi,
As far as I can see then there isn’t a reduction in depreciation of the item of PPE. We previously charged 4,000 per annum but not charge 5,588 per annum and so an additional amount of 1,588 being charged.
Where are you getting your numbers of 7,500 and 3,500 from?
Thanks
Hello Sir,
I am not talking about Revaluation increase example. I am talking about Depreciation: Example 1 where the useful life of an asset changes to 5 years from 10 years. Hence, Depreciation is decreased to 3,500 instead of 2,500. So due to increase in depreciation there will be decrease in distributable profits for December 31st 2014. Shouldn’t we make provision for 1000 from retained earnings?
Anyone has an answer for this, please reply as its essential for me to get the concept clear.
Thanks.I think that it would help if you got the example number correct in the first place. It looks like you are talking about example number 3 that relates to the change in estimate.
Your treatment is incorrect and I’m unsure as to why you are looking to treat it as you say given that this has not been mentioned anywhere. You take the carrying amount at the date of change and apply the new estimate, which is what has been done. There is no adjustment made anywhere in relation to the retained earnings for the differences in depreciation following the change in estimate.
Thanks
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