Financial Accounting · Depreciation

Part-Year Depreciation and Changes in Estimates (IAS 8)

Updated 11 October 2026 · Fact-checked

Part-year depreciation charges an asset only for the months you own it, using months ÷ 12 of the annual charge. A change in useful life or residual value is a change in estimate under IAS 8. You apply it prospectively: spread the carrying amount less new residual value over the remaining life.

Understand Part-Year Depreciation and Changes in Estimates

Depreciation spreads the cost of a non-current asset over the years it is used. An asset bought part-way through a year has not been used for the full year. So you charge only the months it was in use. Annual charge × months ÷ 12.

The same logic applies on disposal. If an asset is sold in month 8, you charge depreciation up to the disposal date. Your exam question will state the company's policy. Some firms charge a full year in the year of purchase and none in the year of disposal. Some charge monthly. Always follow the policy given.

Useful lives and residual values are estimates. IAS 16 requires them to be reviewed at least at each year end. If the review shows a different expectation, the change is a change in accounting estimate. IAS 8 says you apply it prospectively. That means from the current year onward. You do not restate prior years and you do not adjust opening profits.

The working is simple. Take the carrying amount at the date of change. Deduct the new residual value. Divide by the remaining useful life, counted from the date of change. That gives the new annual charge.

Do not confuse this with a change in depreciation method, for example from reducing balance to straight line. Under IAS 16 this is also treated as a change in estimate, so it is also applied prospectively. A change from a non-IFRS-compliant policy to a compliant one is a different matter and is not tested at this level.

Key formulas to remember

Annual straight-line depreciation: (Cost − Residual value) ÷ Useful life in years; The starting point before any time apportionment.
Part-year depreciation: Annual charge × Months in use ÷ 12; Use for assets bought or sold during the year, if the policy is monthly.
Reducing balance part-year: Carrying amount × Rate % × Months ÷ 12; Rate applies to carrying amount, not cost. Apportion the year's charge.
Revised annual charge after change in estimate: (Carrying amount at date of change − New residual value) ÷ Remaining useful life; Remaining life is from the date of change, not from purchase.
IAS 8 treatment: Change in estimate = prospective, no restatement of prior years; Recognised in profit or loss in the current and future periods.

How to solve Part-Year Depreciation and Changes in Estimates questions

Use this order for any question on part-year depreciation or a revised estimate.

1Read the policy. Is depreciation charged monthly, full year in year of purchase, or none in the year of disposal?
2Identify the method: straight line or reducing balance, and the rate or life.
3Calculate depreciation year by year, using months ÷ 12 where the asset was held for part of a year.
4Track the carrying amount at each year end: cost less accumulated depreciation.
5If an estimate changes, stop at the date of change. Find the carrying amount at that date.
6Deduct the new residual value and divide by the remaining life from that date.
7Apportion the new charge for any part year. Add the old-basis charge for the months before the change if the change occurs mid-year.
8Answer the exact question: charge for the year, carrying amount, or accumulated depreciation. Check units and the year end date.

Quickest way: Month-count and carrying-amount shortcut

When to use it: Use in number entry and multiple choice questions where time is tight.

Write the annual charge first. Then multiply by months ÷ 12.
For a revision, calculate carrying amount at the start of the year of change in one line.
Divide (carrying amount − new residual) by remaining years. Do this before looking at the options.
Sanity check: the new charge should be sensible against the old one. A longer life gives a lower charge.
Count months inclusively only if the policy says so, such as a full month for the month of purchase.

Common mistakes in Part-Year Depreciation and Changes in Estimates

Charging a full year's depreciation when the policy is monthly.
Students rush and skip the purchase date.
Fix: Circle the purchase and disposal dates and the policy sentence before calculating.
Restating prior year depreciation after a change in useful life.
It feels like correcting an error.
Fix: A change in estimate is prospective under IAS 8. Only an error would restate prior periods.
Dividing the revised charge by the original total life instead of the remaining life.
Students reuse the old life from the question.
Fix: Count remaining years from the date of change. New life stated as remaining, or total, so read carefully.
Forgetting to deduct the residual value in the revised calculation.
Students divide the carrying amount alone.
Fix: Always use carrying amount less new residual value.
Applying the reducing balance rate to cost every year.
Confusion with straight line.
Fix: Apply the rate to the opening carrying amount for each year.
Using the original residual value after it has been revised.
The old figure is in the first line of the question.
Fix: Cross out superseded estimates once you see the revision.

Worked examples

Example 1

A company with a 31 December year end buys a machine on 1 April Year 1 for $120,000. Residual value is $12,000 and useful life is 9 years. Depreciation is straight line, charged monthly. Calculate the charge for Year 1 and the carrying amount at 31 December Year 1.

Show the solution

Annual charge = (120,000 − 12,000) ÷ 9 = $12,000.
Months in use in Year 1 = 1 April to 31 December = 9 months.
Year 1 charge = 12,000 × 9 ÷ 12 = $9,000.
Carrying amount = 120,000 − 9,000 = $111,000.

Answer: Year 1 depreciation is $9,000 and the carrying amount is $111,000.

Example 2

An asset cost $50,000 on 1 January Year 1, with no residual value and a 10-year life, straight line. At 1 January Year 4 the useful life is re-estimated: it will last 7 more years in total from that date, and the residual value is now $2,000. Calculate the depreciation charge for Year 4.

Show the solution

Annual charge Years 1 to 3 = 50,000 ÷ 10 = $5,000.
Accumulated depreciation at 31 December Year 3 = 5,000 × 3 = $15,000.
Carrying amount at 1 January Year 4 = 50,000 − 15,000 = $35,000.
Depreciable amount = 35,000 − 2,000 = $33,000.
Remaining life = 7 years, so Year 4 charge = 33,000 ÷ 7 = $4,714 (rounded to the nearest dollar).
Prior years are not restated. The change is prospective under IAS 8.

Answer: The Year 4 depreciation charge is $4,714 (rounded).

Exam tips

Highlight the policy wording on purchase and disposal months. The question often gives it in one short sentence.
For number entry, follow any rounding instruction and give the answer in the requested unit.
In multiple response questions on IAS 8, remember that changes in estimate are prospective and are not prior period adjustments.
Check whether the question gives the remaining life or the total life after revision. The two give different answers.
Calculate the carrying amount at the change date first. Most errors start there.

Practice questions from Depreciation

Part-Year Depreciation and Changes in Estimates: frequently asked questions

How do I calculate depreciation for part of a year?

Work out the full annual charge. Multiply it by the number of months the asset was in use, divided by 12. Always check the company's stated policy first, as some charge a full year or none in the year of purchase or disposal.

Is a change in useful life a prior period error under IAS 8?

No. It is a change in accounting estimate. You apply it prospectively, from the date of the change. You do not restate comparative figures or opening reserves.

What is the new depreciation charge when useful life changes?

Take the carrying amount at the date of change. Subtract the new residual value. Divide by the remaining useful life from that date. That gives the new annual charge.

Does a change in depreciation method follow the same rule?

Yes. Under IAS 16 a change in depreciation method is treated as a change in estimate. You apply it prospectively using the carrying amount at the date of the change.