Page 110 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 7

3.6 Changing estimates

An entity should apply the same rates and methods of depreciation
consistently throughout the life of each class of its non-current assets.

However, if it believes that its estimates of useful life and/or residual
value are no longer appropriate it is permitted to change them with no
further recourse. In order to do this, it simply calculates the new
depreciation charge relating to the asset based on the revised estimate
of useful life or residual value.

Example 5

Change of estimated useful life

Using information from Example 4, it is now 20X5 and Barney has reviewed
his estimates of the asset useful life and residual value. He now estimates that
the asset will have a residual value of only $15,000, whilst the total estimated
useful life remains unchanged at four years.

Required:

Calculate the annual depreciation charge for each of the years ended
31 December 20X5 and 20X6.

Solution

Carrying amount at 1 January 20X5 = $103,000 – $37,500 = $65,500

Remaining depreciable amount = $65,500 – $15,000 = $50,500

Annual depreciation charge = $50,500/2 years = $25,250

Illustrations and further practice

Now try question TYU 5 from Chapter 7 of the Study Text.

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