A business purchased an asset on 1 January X1 at a cost of $1,800,000. The asset had an expected life of eight years and a residual value of $20,000. the straight-line method is used to measure depreciation. The financial year ends on 31 December.
At 31 December X3, the estimated remaining life of the asset from that date is now expected to be only three more years, but the residual value is unchanged.
What will be the carrying value (Net Book Value) of the asset as at 31 December X3 for inclusion in the statement of financial position?
Suggested solutions:
Working :
Annual depreciation = (Cost - Residual value)/ years Annual depreciation
= (1,800,000 -20,000 )/ 8
Annual depreciation =222,500
| YEAR | COST | ANNUAL DEPRECIATION | ACC DEPRECIATION | CARRYING VALUE |
| X1 | 1,800,000 | 222,500 | 222,500 | 1,577,500 |
| X2 | 1,577,500 | 222,500 | 445,000 | 1,355,000 |
| X3 | 1,355,000 | 333,750 | 333,750 | 1,021,250 |
New Annual depreciation = (Cost - Residual value)/ years Annual depreciation
= (1,355,000 -20,000 )/ 4
New Annual depreciation =333,750