ExpertHard2 marksShort Answer
ACCA · Question 09 · Recording transactions and events
Section A
On 1 January 20X4, Crimson Textiles bought a weaving machine for $60,000. It was being depreciated over 5 years on a straight-line basis with a $5,000 residual value. On 1 January 20X6, management revised the remaining useful life to 4 years (from that date) and revised the residual value to $2,000.
What is the depreciation charge for the year ended 31 December 20X6? (Enter numbers only)
Section A
On 1 January 20X4, Crimson Textiles bought a weaving machine for $60,000. It was being depreciated over 5 years on a straight-line basis with a $5,000 residual value. On 1 January 20X6, management revised the remaining useful life to 4 years (from that date) and revised the residual value to $2,000.
What is the depreciation charge for the year ended 31 December 20X6? (Enter numbers only)
How to approach this question
Calculate the carrying amount at the date of the change in estimate (1 Jan 20X6). Then, calculate the new depreciation charge by taking the carrying amount, subtracting the new residual value, and dividing by the new remaining useful life.
Full Answer
Original annual depreciation = ($60,000 - $5,000) / 5 = $11,000. Accumulated depreciation for 2 years (20X4, 20X5) = $22,000. Carrying amount at 1 Jan 20X6 = $60,000 - $22,000 = $38,000. New depreciation charge = ($38,000 - $2,000) / 4 years = $9,000.
Common mistakes
Applying the change retrospectively instead of prospectively, or forgetting to subtract the new residual value.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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