Question

Machinery purchased for $47,800 by Bramble Corp. on January 1, 2015, was originally estimated to have an 8-year useful life with a residual value of $3,000. Depreciation has been entered for five years on this basis. In 2020, it is determined that the total estimated useful life (including 2020) should have been 10 years, with a residual value of $3,600 at the end of that time. Assume straight-line depreciation and that Bramble Corp. uses IFRS for financial statement purposes.

Prepare the entry that is required to correct the prior years’ depreciation, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount Show List of Accounts Link to Text

Prepare the entry to record depreciation for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount Show List of Accounts Link to Text

Repeat part (b) assuming Bramble Corp. uses ASPE and the machinery is originally estimated to have a physical life of 8.5 years and a salvage value of $0. In 2020, it is determined that the total estimated physical life (including 2020) should have been 11 years, with a salvage value of $100 at the end of that time. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount Show List of Accounts Link to Text

Repeat part (b) assuming Bramble Corp. uses the double-declining-balance method of depreciation. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount

Answer 1

(a)

No entry is required to correct depreciation of prior period due to error in estimate of useful life. The change is useful is taken as change in accounting estimate and affected prospectively.

(b)

Depreciation previously = (Cost - Salvage value)/number of years of useful life

= ($47,800 - $3,000)/8 = $5,600

Already provided depreciation for 5 years = $5,600 x 5 = $28,000

Revised book balance = $47,800 - $28,000 = $19,800

Depreciation as per new estimates = ($19,800-$3,600)/5 = $3,240

Entey to record depreciation for year 2020

On 31st December 2020

Depreciation expense a/c $3,240

To accumulated depreciation a/c $3,240

(Depreciation for the year accounted based on new estimates)(If there is no accumulated depreciation account, we credit asset account)

(c)

Using ASPE, initial depreciation is higher of

1.Depreciation = ($47,800-0)/8.5 = $5,623.5

2. Depreciation = ($47,800-$3,000)/8 = $5,600

So, initial depreciation is $5,623.5

So carrying balance = $47,800 - 5 x $5,623.5 = $19,682.5

New remaining useful life = 11 - 5 = 6 years (ASPE)

New remaining useful life = 10 - 5 = 5 years (Normal)

Depreciation after change in estimates is higher of

1. Depreciation = ($19,682.5-$100)/6 = $3,263.75

2. Depreciation = ($19,682.5-$3,600)/5 = $3,916.5

So depreciation is $3,916.5

Accounting entry at end of year 2020

On 31st December 2020

Depreciation expense a/c $3,917

To accumulated depreciation a/c $3,917

(Depreciation accounted as per ASPE using new estimates) (If there is no accumulated depreciation account then asset account will be credited)

(d)

Double declining method :

Depreciation rate (old) = (100/8 years) x 2 = 25%

So carrying balance after 5 years = [ Cost (1-25%)⁵ ] = [47,800 (1-25%)⁵] = $11,343

New depreciation rate = (100/5 years) x 2 = 40%

Depreciation for the year = $11,343 x 40% = $4,537

Accounting entry for the year ended 31st December 2020

Depreciation expense a/c $4,537

To Accumulated depreciation a/c $4,537

(Depreciation accounted using double decline balance method with new estimates) (If no accumulated depreciation is available, then credit asset account)