ExpertHard2 marksMultiple Choice
ACCA · Question 14 · Depreciation
LogisticsPro purchased a delivery truck for $60,000 on 1 January 20X1. It was initially depreciated on a straight-line basis over 5 years with a $10,000 residual value. On 1 January 20X3, after 2 years of depreciation, the directors revise the remaining useful life to 2 years (total life 4 years) and revise the residual value to $5,000. What is the depreciation charge for the year ended 31 December 20X3?
LogisticsPro purchased a delivery truck for $60,000 on 1 January 20X1. It was initially depreciated on a straight-line basis over 5 years with a $10,000 residual value. On 1 January 20X3, after 2 years of depreciation, the directors revise the remaining useful life to 2 years (total life 4 years) and revise the residual value to $5,000. What is the depreciation charge for the year ended 31 December 20X3?
Answer options:
A.
$10,000
B.
$17,500
C.
$20,000
D.
$27,500
How to approach this question
Calculate the carrying amount at the date of change. Then, apply the new estimates (remaining life and new residual value) prospectively to this carrying amount.
Full Answer
B.$17,500✓ Correct
1. Original annual depreciation: ($60,000 - $10,000) / 5 years = $10,000 per year.
2. Accumulated depreciation after 2 years (1 Jan 20X3) = $20,000.
3. Carrying amount at 1 Jan 20X3 = $60,000 - $20,000 = $40,000.
4. A change in useful life is a change in accounting estimate, handled prospectively.
5. New annual depreciation = (Carrying amount $40,000 - New residual value $5,000) / Remaining life 2 years = $35,000 / 2 = $17,500.
Common mistakes
Applying the new estimates retrospectively (recalculating from year 1) or forgetting to deduct the accumulated depreciation before applying the new life.
Practice the full ACCA FA — Financial Accounting Practice Exam 3
65 questions · hints · full answers · grading
More questions from this exam
Q01GlobalWater NGO, a non-governmental organization providing clean water solutions, is preparing it...EasyQ02NexusTech, a cross-border multinational software company, operates in 15 different countries. Why...MediumQ03In the context of a large public utility company, which of the following is strictly the responsi...EasyQ04Quantum AI, a tech startup, is developing a revolutionary algorithm. The directors want to capita...MediumQ05AgriGrow, a large agricultural firm, recently changed its method of depreciating tractors from th...Medium