Review of useful life, residual value and method

Learning objectives

• Identify that a revision of the useful life, residual value or method is a change in an accounting estimate.L2
• Calculate the revised depreciation charge prospectively.L2, L3
• Prepare the disclosure about a change in an accounting estimate.L3, L4

Normative references

• IAS 16 §51The residual value and the useful life are reviewed at least at each financial year-end; any change is a change in an accounting estimate in accordance with IAS 8.
• IAS 16 §61The method is reviewed at least at each financial year-end and changed if there has been a significant change in the pattern; change in an accounting estimate in accordance with IAS 8.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• A machine costing {cost}, with no residual value, is depreciated on a straight-line basis over {original_life}. At the start of the fifth year, after {years_elapsed} of use, a technical review concludes that the machine will only be usable for a further {revised_remaining_life}. What annual charge should be recognised from this year onwards?L3