On 30 June 2023, the end of the current reporting period, Master Ltd decided, using the information obtained over the past few years, to revise the useful life of a Machine acquired 2 years earlier for $100,000. The useful life was revised from being a total of 10 years to being a total of 14 years. The machine was depreciated on straight-line basis over its useful life and have no residual value. No depreciation has been provided in the current year. Required: i) Prepare the journal entry to account for the change in accounting estimate. ii) Prepare an appropriate supporting note assuming that change in accounting estimate had a material effect on financial performance for the period.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On 30 June 2023, the end of the current reporting period, Master Ltd decided, using the
information obtained over the past few years, to revise the useful life of a Machine acquired 2
years earlier for $100,000. The useful life was revised from being a total of 10 years to being a
total of 14 years. The machine was
have no residual value. No depreciation has been provided in the current year.
Required:
i) Prepare the
ii) Prepare an appropriate supporting note assuming that change in accounting estimate had
a material effect on financial performance for the period.
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