ExpertHard2 marksShort Answer
ACCA · Question 11 · Recording Transactions: Tangible Assets
Section A
EcoTransit operates a fleet of electric buses. A bus was purchased on 1 January 20X2 for $120,000 with a 10-year useful life and no residual value (straight-line depreciation). On 1 January 20X5, management revised the total useful life to 8 years from the date of purchase, with a revised residual value of $6,000.
What is the depreciation charge for the year ended 31 December 20X5? (Enter the number only)
Section A
EcoTransit operates a fleet of electric buses. A bus was purchased on 1 January 20X2 for $120,000 with a 10-year useful life and no residual value (straight-line depreciation). On 1 January 20X5, management revised the total useful life to 8 years from the date of purchase, with a revised residual value of $6,000.
What is the depreciation charge for the year ended 31 December 20X5? (Enter the number only)
How to approach this question
Calculate the carrying amount at the date of the change (1 Jan 20X5). Then calculate the new depreciation charge based on the remaining useful life and new residual value.
Full Answer
Original depreciation = $120,000 / 10 = $12,000 per year.
Accumulated depreciation for 3 years (20X2, 20X3, 20X4) = $36,000.
Carrying amount at 1 Jan 20X5 = $120,000 - $36,000 = $84,000.
Revised total life = 8 years. Remaining life from 1 Jan 20X5 = 8 - 3 = 5 years.
New depreciation = (Carrying amount - New residual value) / Remaining life
New depreciation = ($84,000 - $6,000) / 5 = $78,000 / 5 = $15,600.
Common mistakes
Recalculating depreciation retrospectively from year 1, or forgetting to subtract the 3 years already passed from the new total life of 8 years.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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