- November 24, 2015 at 6:46 am #284828
Sir, I am struggling with the following question and I hope you can help me.
Here’s question 4 from the test of chapter 6:
On 1 January 2000 Krin Co. brought a machine for $70,000.It was estimated that the machine’s useful life would be 7 years and its residual value $7,000.Two years later the useful life was revised to three remaining years and at 31 December 2003 the machine was sold fro $30,000.What is the profit on disposal?
My calculation is :
but in the answer, the calculation would be:
So my question is, why we use the value of $52000 after 2 years, to calculate the depreciation charge instead of original cost$70000? I think It’s only the useful life is changing not the value.
I am a little confused about the figure I need to put on calculation to get depreciation charge whenever there’s a change in value(that is revaluation) and useful life.
Please help me with this.
Thank you,sir.November 24, 2015 at 8:34 am #284848
When the useful life is changed, the new depreciation charge is calculated on the carrying value (net book value) at the date of the change. In that way the value would still end up being 7,000 (the residual value) at the end of its new life.November 25, 2015 at 6:08 am #285067
does useful life mean the same as remaining life?November 25, 2015 at 8:26 am #285103
Yes – the expected remaining life.November 26, 2015 at 5:34 am #285336
🙂November 26, 2015 at 9:43 am #285394
You are welcome 🙂
- You must be logged in to reply to this topic.