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ACCA Applied Knowledge · Financial Accounting · Depreciation

Vega Co bought a machine on 1 January 20X1 for $100,000, depreciated straight-line over 10 years with no residual value. On 1 January 20X4, after a review, the remaining useful life was re-estimated as 5 years from that date, with no residual value. What is the depreciation charge for the year ended 31 December 20X4?

The charge is $14,000. After three years at $10,000 the carrying amount is $70,000, and a change in useful life is a change in estimate applied prospectively, so this is spread over the remaining five years. No prior-year restatement is made.

  1. A$10,000
  2. B$14,000Correct
  3. C$20,000
  4. D$14,000 charged with a prior-period adjustment to retained earnings

Explanation

At 1 January 20X4 accumulated depreciation is 3 x 10,000 = 30,000, so carrying amount is 70,000. A change in estimate is applied prospectively over the remaining 5 years: 70,000 / 5 = 14,000. No restatement of prior years is made, so the last option is wrong, and $10,000 ignores the revised life.

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