Topic08 Solutions - AF3110 Intermediate Accounting 1...

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1 AF3110 Intermediate Accounting 1 2009/10 Semester 2 Topic 8 Suggested Solutions Question 1 (Chapter 12 Q13) (a) (i) The depreciation charge is based on the cost of the asset, less the expected net residual value at the time of disposal, over the expected useful life to the owner. $000 $000 Cost of boat 200 Residual value 180 Realisation costs (10%) 18 162 Depreciable amount 38 Depreciation is therefore $19,000 in 20X3 and 20X4. The basis of the calculation is that the boat should be depreciated over the period the owner expects to receive an economic benefit, not the physical life of the asset itself. (ii) $000 $000 Cost of boat 200 Depreciation ($19,000 x 2) 38 162 Proceeds on sale 180 Realisation costs 18 162 Profit on disposal - The profit (loss) on disposal represents excessive (inadequate) depreciation provided over the non-current asset s useful economic life. It can be viewed as a correction for accounting estimate. (b) The carrying amount will be written off over the remaining useful life.
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