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ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets

Brightwell Co has a machine bought for $100,000 on 1 January 20X1, depreciated straight-line over 10 years with nil residual value. On 1 January 20X4 the useful life was reassessed: the remaining life from that date is 5 years (total 8 years), and the residual value is now estimated at $5,000. What is the depreciation charge for the year ended 31 December 20X4?

The charge is $13,000. A change in estimate is applied prospectively from the carrying amount. After three years at $10,000 the carrying amount is $70,000; deducting the new $5,000 residual and spreading the $65,000 over the remaining five years gives $13,000 per year, with no restatement of prior years.

  1. A$13,000Correct
  2. B$11,875
  3. C$14,000
  4. D$10,000

Explanation

Change in estimate is applied prospectively. Depreciation to 31 Dec 20X3 = 3 x 10,000 = 30,000, carrying amount 70,000. New charge = (70,000 - 5,000) / 5 = $13,000. $11,875 wrongly restates using the 8-year total life on cost; $10,000 ignores the change.

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