Discuss the appropriate accounting treatment for the following transactions in accordance
with MFRS108 Accounting Policies, Changes in Accounting Estimates and Errors:
i. An equipment costing RM50,000 and residual value of RM2,000 was acquired on 1
January 2009 and depreciated on a straight-line basis over 10 years. As at 1 January
2011, the remaining life of the equipment was revised to 6 years with no residual
value.
In January 2011, there is a change of estimate occurred.
The change in the useful life from 10 years to 6 years is a change of estimate.
The adjustment should be applied prospectively in the period of change (current year
2011) and future periods (if the change affects future year)
Adjustment in year 2011- changes in estimates
Dr Depreciation 10,100
Cr Accumulated depreciation 10,100
please show me how to get rm10,100
To calculate the adjustment amount of RM10,100, you need to consider the difference in depreciation expense between the original estimate and the revised estimate.
Original Estimate:
Depreciation expense per year = (Cost - Residual Value) / Useful life
= (RM50,000 - RM2,000) / 10 years
= RM4,800 per year
Revised Estimate:
Depreciation expense per year = (Cost - Residual Value) / Useful life
= (RM50,000 - RM0) / 6 years
= RM8,333.33 per year
Difference in depreciation expense = Revised estimate - Original estimate
= RM8,333.33 - RM4,800
= RM3,533.33
This difference represents the adjustment amount for the change of estimate. However, since the change occurred in January 2011, you need to prorate this amount for the remaining months in the year.
Assuming the change occurred on 1 January 2011, there are 12 months in the year. So the adjustment for 2011 would be:
Adjustment in 2011 = Difference in depreciation expense * (remaining months in the year / 12)
= RM3,533.33 * (12 / 12)
= RM3,533.33
Therefore, the adjustment amount for the change of estimate in 2011 would be RM3,533.33.