Question

Waves Corp., which has a calendar fiscal year, purchased its only depreciable capital asset on 1 January 2013. Information related to the asset:

   Original cost $900,000

Estimated residual value 107,000

Depreciation method Declining balance

Depreciation rate 30%

In 2015, Waves decreased the estimated residual value to $33,800, and increased the depreciation rate to 40%. Both changes are the result of experience with the asset and revised expectations about the pattern of usage.

Additional information:

	2015				2014
Revenue	$	3,359,000			$	2,781,000
Expenses other than depreciation and tax		1,998,000				1,530,000
Gain (loss) from discontinued operations, before tax		56,100				0
Tax rate		30	%			30	%

Required:
1-a. Calculate the ending 2015 balance of accumulated depreciation.
1-b. Prepare the 2015 entry for depreciation. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
2. Provide the condensed comparative statement of comprehensive income for 2015, including disclosures related to the accounting change.

	WAVES CORPORATION Statement of Comprehensive Income For Year Ended 31 December 2015 2014 Revenue Expenses other than depreciation and tax Depreciation expense Net income before discontinued operations and tax Income tax expense Net income from continuing operations Discontinued operations gain Net income and comprehensive income

Answer 1

1-a) Since the Depreciation is charged on Declining Balance Method and the residual value as well as the rate of depreciation is changed based on the experience and revised expectation therefore the depreciation for the year 2015 will be charged based on the revised figures and additional depreciation will also be adjusted for the previous years in current year i.e 2015.

therefore for the accumulated depreciation for the year 2015 will be as follows:

Cost	900000
Residual value	33800
Rate	40%

Year	Net Book Value		Residual Value		Rate		Depreciation	Accumulated Depreciation
2013	900000	–	33800	x	40%	=	346480	346480
2014	553520	–	33800	x	40%	=	207888	554368
2015	345632	–	33800	x	40%	=	124732.8	679100.8

Finally Accumulated depreciation at the end of year 2015 will be $679100.8.

1-b)

There will be two Journal Entries for depreciation in year 2015

first will be for charging depreciation for the current year at the rate of 40%

Particulars	Debit	Credit
Proft and Loss A/c	124732.8
To Accumulated Depreciation A/c		124732.8
(Being Depreciation accumulated for the Current year at the Rate of 40%)

and second will be for charging additional depreciation in the current year due to difference in rate of Depreciation and residual Value in previous years.

Entry Will be as Follows:

Particulars	Debit	Credit
Proft and Loss A/c	149938
To Accumulated Depreciation A/c		149938
(Being Additional Depreciation accumulated for the previous years due to difference in rate of Depreciation)

Following are the Calculations for Depreciation based on old fiqures upto year 2014:

Cost	900000
Residual value	107000
Rate	30%

Year	Net Book Value		Residual Value		Rate		Depreciation	Accumulated Depreciation
2013	900000	–	107000	x	30%	=	237900	237900
2014	662100	–	107000	x	30%	=	166530	404430

Therefore upto Year 2014 Accumulated Depreciation = $404430

Based on revised fiqures upto Year 2015 Accumulated Depreciation should be = $554368.

Therefore additional Depreciation Charged = $554368 - $404430 = $149938.

2.

WAVES CORPORATION
Statement of Comprehensive Income
For Year Ended 31 December 2015
Particulars	2015	2014
Revenue	3,359,000	2,781,000
Expenses other than depreciation and tax	1,998,000	1,530,000
Depreciation expense	274670.8	166530
Net income before discontinued operations and tax	1,086,329	1,084,470
Income tax expense	325898.76	325341
Net income from continuing operations	760,430	759,129
Discontinued operations gain [56100 - (56100*30%)]	39,270	0
Net income and comprehensive income	799,700	759,129
Note:
During to year Under Review i.e 2015, Due to the result of experience with the asset and revised expectations about the pattern of usage the salvage value of the capital asset was reduced from $107000 to $33800 and the rate of Depreciation was also raised from 30% to 40%. Due to This Additional Depreciation of $ 149938 which related to year 2013 and 2014 was charged in Current Year 2015.