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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 $107,500hello ,l looked at explanation of this exercise but l can not understand why depreciation for 2013 is determined with intending new useful life
l solved so:
(160-40)/8=15000$
after 4 years the carrying amount equal to 100000$ but my answer was wrongplease,explain the solution of this exercise thoroughly
thanks in advance
Initially the depreciation will have been 15,000 per year.
Therefore the carrying value (net book value) as at 1 January X3 will have been 160,000 x (2 x 15,000) = 130,000.
When depreciation is calculated at 31 December X3, it will be based on the new remaining life of 4 years (the year to December X3 plus the 3 remaining year). So the depreciation will be (130,000 – 40,000) / 4 = 22,500.
Therefore the carrying value at 31 December X3 is 130,000 – 22,500 = 107,500
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