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Could you please explain me the excess depreciation working and how they got 0.4m in the answer?
Rose purchased plant for $20 million on 1 May 2007 with an estimated useful life of six years. Its estimated residual value at that date was $1·4 million. At 1 May 2010, the estimated residual value changed to $2·6 million. The change in the residual value has not been taken into account when preparing the financial statements as at 30 April 2011
So initially your cost is going to be 20-1.4 (residual value) = 18.6m which will be depreciated over 6 yrs:18.6/6=3.1m depreciation per annum
YE 08 18.6-3.1=15.5
YE 09 15.5-3.1= 12.4
YE 10 12.4-3.1 = 9.3now advised that value is 2.6 so difference is now 2.6-1.4 = 1.2m additional value.
This you can add to the value of plant so 9.3+1.2 = 10.5. Depreciation has to increase by 0.4 per annum as you have three years left (1.2/3=0.4).
Then start depreciating
YE 11 10.5 (9.3+1.2) – 3.5 (previous 3.1+additional 0.5).
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