Page 25 - FR Integrated Workbook 2018-19

Tangible non-current assets

Illustration 2

The depreciable amount of $75,000 calculated above will be charged as an
expense over the useful life of the asset.

On a straight-line basis this would give an annual charge of $75,000/5 =
$15,000.

Using the reducing balance method would still require $75,000 to be charged
as an expense over 5 years, calculating an appropriate percentage.

Illustration 3

Revision of useful life

An asset was purchased for $100,000 on 1 January 20X5 and straight-line
depreciation of $20,000 pa is being charged (five-year life, no residual value).
At 1 January 20X7 the annual review of asset lives was undertaken and for this
particular asset, the remaining useful life was estimated at eight years.

What is the depreciation charge for the year ended 31 December 20X7?

Solution

The depreciation charge for current and future years will be:

Carrying amount as at 31 December 20X6 $60,000

($100,000 – (2 × $20,000))

Remaining useful life as at 1 January 20X7 8 years

Annual depreciation charge $7,500

($60,000/8 years)

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