Page 168 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 10

3.1 Methods of calculating depreciation

Depreciation can be calculated using the straight line or the reducing balance
method.

Straight line

Original Cost – residual value/estimated useful life, Or;

% × Original cost

Reducing balance

% × carrying value (carrying value = cost – accumulated depreciation)

3.2 Changes in depreciation method

In accordance with IAS 16 Property, Plant and Equipment, depreciation methods
should be reviewed periodically. If it is decided that there has been a change in the
pattern of consumption of benefits, the depreciation method should be changed to
reflect this, e.g. a change from the straight line method to the reducing balance
method.

Any change in the depreciation method should be treated as a change in accounting
estimate and so the new method should be applied in the current and future
accounting periods (see IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors, later). Changes in depreciation methods do not represent a
change in accounting policy and so depreciation charges of earlier periods should not
be altered.

158