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A business purchased an asset on 1 January 20X1 at a cost of $160,000. The asset had an expected life of eight years and a residual value of $40,000. The straight-line method is used to measure depreciation. The financial year ends on 31 December.
At 31 December 20X3, the estimated remaining life of the asset from that date is now expected to be only three more years, but the residual value is unchanged.
What will be the net book value of the asset as at 31 December 20X3, for inclusion in the statement of financial position?A $97,500
B $100,000
C $107,500
D $115,000the depreciation for a year be 160000-40000/8 = 15000.In the question at 31st december they find out the remaining useful life of the asset is 3 more year since it was found out on 31st december the depreciation for the year will be based on previous year calulation and the depreciation for the next year will be calculated i based on new depreciation calculation on the remaning useful life right?
But in the question they have calculated 3rd year depreciation based on the new useful life which is isn’t that wrong?
When they come to calculate the depreciation on 31 December 20X3, they already know that the remaining life is 3 years, and so it is sensible to calculate the depreciation already knowing that.
The book value at the start of the 3rd year is 160,000 – (2 x 15,000) = 130,000.So the depreciation charge in the 3rd year will be (130,000 – 40,000) / 4 = $22,500.
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