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Qn) The liverpool company acquired a drilling machine on 1 october 20X5 at a cost of $25000 and depreciated it at 25% per annum on a straight line basis.
On 1october 20×7, 5000 was spent on an upgrade to the machine in order to improve its effieciency and increase the inflow of economic benefits over the machine’s remaining life
According to IAS 16, what depreciation expense should be recognised in profit or loss for the year ended 30 september 20X8?
For the above qn, the 5000 can be capitalized right. So i took the
carrying amount at 1 october 20×7 12500 +5000 = 17500
Therefore depreciation
= 17500 x 25%
= 4375“over the machine’s remaining life”
A machine has a 4 year life
After 2 years it is improved
How many more years remaining life does it have now?
2 years left. Okay i managed to get the correct answer already. Thank you so much!
Sorry. But i just realised, we only depreciate the total capitalised cost of 17500 from 1 october 20X7 to 30 september 20×8. Thats only 1 year of depreciation. And we are not told what is the useful life of the machine. Then why is the answer $8750 ?
Qn) The liverpool company acquired a drilling machine on 1 october 20X5 at a cost of $25000 and depreciated it at 25% per annum on a straight line basis.
I believe, above makes it 4 year useful life. Isn’t it?
Anuja, “from 1 october 20X7 to 30 september 20×8. Thats only 1 year of depreciation.” Yes, but when the machine was purchased on 1 October, 20X7, it had a 4 year estimated useful life which means that it would be fully depreciated over 4 years at 25% straight line
You yourself have worked out that two years have already passed when the upgrade was carried out and there must have been 2 years of estimated useful life still remaining at that time
vishalsharma1981 – if you wish to answer students’ questions, may I suggest you start your own website and refrain from rudely answering questions that are specifically addressed to me?
Thanks
Sir,
If the excess depreciation on revalued amount is transfered to retained earnings from revaluation reserves
How about if the revalued amount is less than cost of asset
And that means depreciation now charged will be less than previously charged
Do we have to make any adjustments for the same?Yes, it’s called an impairment and the decrease in value is either debited to revaluation reserve, where the asset has been previously revalued, or it’s debited to statement of profit or loss
Is there any adjustment to the depreciation? No. that was correctly calculated as at the time it was calculated. The depreciation from the date of impairment onwards will still be calculated to write off this newly impaired asset over its estimated remaining useful life
OK?
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